Secretarial Department

SD/F24/42/2020-21 June 24, 2020

The Manager The Manager Listing Department Department of Corporate Services The National Stock Exchange of India BSE Limited Limited Phiroze Jeejeebhoy Towers, Exchange Plaza, Bandra-Kurla Complex, Floor 25, Dalal Street, Mumbai – 400 001 Bandra (E), Mumbai – 400 051 Re.: Scrip Symbol: FEDERALBNK/Scrip Code: 500469

Sub: Annual General Meeting (AGM) – Notice of 89th AGM, Annual Report 2019-20, Intimation of Book Closure and e-voting related matters

Dear Madam/ Sir,

The 89th AGM of the will be held on Thursday, July 16, 2020 at 11 a.m. IST through Video Conferencing / Other Audio Visual Means. In accordance with circulars issued by Ministry of Corporate Affairs (MCA), shareholders will be able to attend and participate in the AGM only through VC / OAVM.

Pursuant to Regulation 34(1) of Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”), we are submitting herewith the Annual Report of the Bank along with the Notice of AGM for the financial year 2019- 20 which is being sent through electronic mode to the Members of the Bank.

Pursuant to Regulation 42 of SEBI Listing Regulations, the Register of Members and the Share Transfer Books of the Bank shall remain closed from July 11, 2020 to July 16, 2020 (both days inclusive). Details of the book closure are as follows:

Scrip Code/ Stock Type of Book Closure Record Purpose Symbol Exchange Security Date 500469 BSE Limited Equity Saturday, July 11, Nil 89th FEDERALBNK National Stock Shares 2020 to Thursday, AGM Exchange of July 16, 2020 (both India Limited days inclusive)

The Bank is providing electronic voting facility to its members to exercise their right to vote by electronic means on any or all the items of business as set out in the Notice, through National Securities Depository Limited, (NSDL) e-voting platform, which will commence on Monday, July 13, 2020 at 9:00 am and ends on Wednesday, July 15, 2020 at 5:00 pm. The e-Voting module will be disabled after 5 p.m. on Wednesday, July 15, 2020. The members who have not cast their votes by remote e-voting can exercise their voting rights through the e-voting system during the AGM. A person, whose name is recorded in the Register of Members or in the Register of Beneficial Owners maintained by the Depositories as on cut-off date i.e. Friday, July 10, 2020 only shall be entitled to avail the facility of remote e-voting or e-voting at the meeting.

The Ltd. Registered Office: Federal Towers, Aluva, Ernakulam, Kerala, India 683 101E-mail: [email protected]| Phone : 0484-2622263,L65191KL1931PLC000368,www.federalbank.co.in

The Annual Report and the Notice of 89th AGM are also uploaded on the Bank’s website, https://www.federalbank.co.in/shareholder-information and on the website of National Securities Depository Limited (NSDL) https://www.evoting.nsdl.com.

Kindly take the information on record.

Thanking you, Yours faithfully,

For The Federal Bank Limited

Samir P Rajdev Company Secretary

The Federal Bank Ltd. Registered Office: Federal Towers, Aluva, Ernakulam, Kerala, India 683 101E-mail: [email protected]| Phone : 0484-2622263,L65191KL1931PLC000368,www.federalbank.co.in

THE FEDERAL BANK LIMITED CIN: L65191KL1931PLC000368 Federal Towers, Aluva, Kerala - 683 101, India. Phone: 0484 – 2622263, E-mail: [email protected] Website: www.federalbank.co.in

NOTICE TO SHAREHOLDERS

Notice is hereby given that Eighty Ninth Annual General Meeting (AGM) of the members of The Federal Bank Limited will be held on Thursday, July 16, 2020 at 11 a.m. IST through Video Conferencing (“VC”) / Other Audio Visual Means (“OAVM”) to transact the following business:

ORDINARY BUSINESS

1. To receive, consider and adopt a. the audited financial statements, including audited Balance Sheet and Profit and Loss Account of the Bank for the financial year ended March 31, 2020 and the Reports of the Board of Directors and the Auditors thereon. b. the audited consolidated financial statements, including audited consolidated Balance Sheet and Profit and Loss Account of the Bank for the financial year ended March 31, 2020 and the Report of the Auditors thereon.

2. To appoint a Director in place of Mr. Shyam Srinivasan (DIN: 02274773), who retires by rotation, and being eligible, offers himself for re-appointment.

3. To appoint Joint Statutory Central Auditors and to fix their remuneration.

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 139, 142 and other applicable provisions, if any, of the Companies Act, 2013 (“the Act”) read with the Companies (Audit and Auditors) Rules, 2014 and other applicable rules, if any and the provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and the rules, guidelines and circulars issued by the Reserve (“RBI”), from time to time and in terms of their confirmation with regard to their eligibility to be appointed as Statutory Auditors pursuant to Section 141 of the Companies Act, 2013 and applicable rules and as per the approval granted by RBI, Members of the Bank be and hereby appoint M/s. Varma & Varma, Chartered Accountants (Registration No. 004532S), Kochi for a period of four (4) years together with M/s. Borkar & Muzumdar, Chartered Accountants (Registration No. 101569W), Mumbai for a period of three (3) years as Joint Statutory Central Auditors of the Bank from the conclusion of 89th AGM till the conclusion of 93rd and 92nd AGM respectively, on a remuneration / fees of Rs. 1,30,00,000/- (Rupees One Crore Thirty Lakhs only) outlays and taxes at the applicable rates, for the purpose of audit for the Financial Year 2020-2021, including certifications, reporting on internal financial controls, of the Bank's accounts at its head office, branches and other offices, for such remuneration and expenses thereafter as may be mutually agreed between the Bank and the said Statutory Auditors and as may be further approved by the Board from time to time, with power to the Board, including relevant Committee(s) thereof, to alter and vary the terms and conditions of appointment, etc., including by reason of necessity on account of conditions as may be stipulated by RBI and / or any other authority, in such manner and to such extent as may be mutually agreed with the Statutory Auditors.”

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Special Businesses

4. Appoint and to fix the remuneration of branch auditors in consultation with the Statutory Central Auditors for the purpose.

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Sections 139 and 143(8) of the Companies Act, 2013 read with the Companies (Audit and Auditors) Rules, 2014 and other applicable rules, if any, the applicable provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and the rules, circulars and guidelines issued by , including any statutory modification(s) or re-enactment(s) thereof, the Board of Directors be and is hereby authorized to arrange for the audit of the Bank’s branches for the financial year 2020-21 and to appoint and fix the remuneration of branch auditors in consultation with the Joint Statutory Central Auditors.”

5. Re-appointment of Mr. Shyam Srinivasan (DIN: 02274773) as Managing Director & Chief Executive Officer of the Bank.

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 152, 196, 203 and all other applicable provisions, if any, of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) and the relevant Rules made thereunder (including any statutory modification(s) or re-enactment(s) thereof, for the time being in force), Section 10B, 35B and other applicable provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and the rules, circulars and guidelines issued by the Reserve Bank of India (‘RBI’) and the applicable Regulations under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Articles of Association of the Bank and the approval granted by the RBI vide letter DBR. Appt. No.2280/ 08.38.001/2019-20 dated September 21, 2019, Mr. Shyam Srinivasan (DIN: 02274773) be and is hereby re-appointed as Managing Director & Chief Executive Officer of the Bank, for a period of one year with effect from September 23, 2019 to September 22, 2020 on such remuneration, terms and conditions as detailed in the explanatory statement to this notice.”

6. To take on record RBI approval for appointment of Ms. Grace Koshie (DIN: 06765216) as Part- Time Chairperson of the Bank and to approve her remuneration.

To consider and, if thought fit, to pass the following resolution, with or without modification(s) as an Ordinary Resolution:

“RESOLVED THAT pursuant to the applicable provisions of the Companies Act, 2013 (the 'Act') and the rules made thereunder, Section 10B and other applicable provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or amendment(s) thereto or re-enactment(s) thereof for the time being in force), and the rules, circulars and guidelines issued by the Reserve Bank of India, and Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, and subject to the provisions of the Articles of Association of the Bank, and the

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approval granted by the Reserve Bank of India ('RBI') vide letter DBR. Appt. No. 3560/08.38.001/2019-20 dated November 07, 2019, members of the Bank be and hereby takes on record the approval received from RBI including the terms of appointment of Ms. Grace Koshie (DIN: 06765216) as Part-Time Chairperson of the Bank with effect from November 07, 2019 to November 21, 2021 and approve the payment of remuneration to Ms. Grace Koshie of Rs. 1,50,000 (Rupees One Lakh Fifty Thousand only) per month (Rs. 18,00,000/- (Rupees Eighteen Lakhs only) per annum).”

7. Appointment of Ms. Grace Koshie (DIN: 06765216) as a Non – Executive Non – Independent Director of the Bank

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 10A and other applicable provisions, if any, of the Banking Regulation Act, 1949, Section 152 and other applicable provisions of the Companies Act, 2013 ('Act') read with the Companies (Appointment and Qualification of Directors) Rules, 2014 and other applicable rules, if any, Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (including any statutory modification(s) or re- enactment(s) thereof for the time being in force), the rules, circulars and guidelines issued by the Reserve Bank of India (‘RBI’), Ms. Grace Koshie (DIN: 06765216), Part –Time Chairperson and Independent Director, whose period of office as Independent Director is liable to expire on July 16, 2020 and in respect of whom the Bank has received a notice in writing from a Member proposing her candidature for the office of Director in terms of Section 160 of the Act and pursuant to the recommendation of the Nomination, Remuneration, Ethics and Compensation Committee and Board of Directors, be and is hereby appointed as a Non–Executive, Non-Independent Director of the Bank with effect from July 17, 2020 to November 21, 2021, liable to retire by rotation.”

8. Appointment of Mr. Sudarshan Sen (DIN: 03570051) as an Independent Director of the Bank

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 149, 150, 152 and any other applicable provisions of the Companies Act, 2013 (“the Act”) and the Companies (Appointment and Qualification of Directors) Rules, 2014 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) read with Schedule IV to the Act and Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”), Section 10A and other applicable provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and the rules, circulars and guidelines issued by the Reserve Bank of India, Mr. Sudarshan Sen (DIN: 03570051), who was appointed as an Additional Independent Director by the Board of Directors of the Bank, with effect from February 11, 2020, in terms of Section 161(1) of the Act and Articles of Association of the Bank and whose term of office expires at the Annual General Meeting and who has submitted a declaration that he meets the criteria for independence as provided in the Act and Listing Regulations and in respect of whom the Bank has received a notice in writing from a member proposing his candidature for the office of Director in terms of Section 160 of the Act, be and is hereby appointed as an Independent Director of the Bank to hold office for a term of five consecutive years with effect from February 11, 2020, not liable to retire by rotation.”

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9. Re-appointment of Mr. Ashutosh Khajuria (DIN: 05154975) as an Executive Director of the Bank

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 152, 196, 203 and all other applicable provisions, if any, of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) and the relevant Rules made thereunder (including any statutory modification(s) or re-enactment(s) thereof, for the time being in force), Section 10A, 35B and other applicable provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and the rules, circulars and guidelines issued by the Reserve Bank of India (‘RBI’) and the applicable Regulations under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, Articles of Association of the Bank and the approval granted by the RBI vide its letter no. DoR. Appt No. 5116/08.38.001/2019-20 dated December 27, 2019, Mr. Ashutosh Khajuria (DIN: 05154975) be and is hereby re-appointed as an Executive Director of the Bank designated as Executive Director and Chief Financial Officer of the Bank for the period from January 28, 2020 to March 31, 2021 on such remuneration, terms and conditions as detailed in the explanatory statement to this notice.”

10. Appointment of Ms. Shalini Warrier, Chief Operating Officer (DIN: 08257526) as an Executive Director of the Bank

To consider and, if thought fit, to pass, with or without modification, the following Resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 152, 196, 203 and all other applicable provisions, if any, of the Companies Act, 2013 (hereinafter referred to as ‘the Act’) and the relevant Rules made thereunder (including any statutory modification(s) or re-enactment(s) thereof, for the time being in force), Section 10A, 35B and other applicable provisions of the Banking Regulation Act, 1949 (including any statutory modification(s) or re-enactment(s) thereof for the time being in force) and the rules, circulars and guidelines issued by the Reserve Bank of India (‘RBI’), the applicable Regulations under the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the approval granted by the RBI vide its letter no. DoR. Appt No. 5658/08.38.001/2019-20 dated January 15, 2020, Ms. Shalini Warrier, Chief Operating Officer (DIN: 08257526 ) who was appointed as an Additional Executive Director by the Board of Directors of the Bank, with effect from January 15, 2020, in terms of Section 161(1) of the Act and Articles of Association of the Bank and whose term of office expires at the Annual General Meeting, in respect of whom the Bank has received a notice in writing from a member proposing her candidature for the office of Director in terms of Section 160 of the Act, be and is hereby appointed as an Executive Director of the Bank designated as Executive Director and Chief Operating Officer of the Bank, for a period of three years with effect from January 15, 2020 on such remuneration, terms and conditions as detailed in the explanatory statement to this notice.”

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11. Raising of Funds through Issuance of Bonds

To consider and, if thought fit, to pass the following Resolution, with or without modification(s) as a Special Resolution:

“RESOLVED THAT pursuant to provisions of Section 42 of the Companies Act, 2013, Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008, the Simplified Listing Agreement for Debt Securities, as amended from time to time and other applicable laws, if any, the provisions of the Memorandum and Articles of Association of the Bank and subject to receipt of such approval(s), consent(s), permission(s) and sanction(s) as may be necessary from the concerned statutory or regulatory authority(ies), the approval of the Members of the Bank be and is hereby accorded to the Board of Directors of the Bank for borrowing/ raising funds in Indian currency/ in equivalent foreign currency by way of issue of debt instruments including but not limited to Additional Tier I bonds (AT1 bonds), Tier II bonds, Long Term Bonds (Infrastructure & Affordable Housing), Masala Bonds, Green bonds, non-convertible debentures or such other debt securities as may be permitted by Reserve Bank of India (‘RBI’) from time to time, up to Rs. 8000 crore (Rupees Eight Thousand Crore only) in domestic market and/or overseas market, under one or more shelf disclosure document and/or under one or more letter of offers as may be issued by the Bank and in one or more tranches, on a private placement basis, within the overall borrowing limits under the provisions of Section 180(1) of the Companies Act 2013, on such terms and conditions for each series / tranches including the price, coupon, premium, discount, tenor etc. as may be approved by the Board of Directors of the Bank, from time to time.”

“RESOLVED FURTHER THAT the Board of Directors of the Bank be and is hereby authorized to execute all such agreements, documents, instruments and writings, to settle, questions, difficulties or doubts that may arise with regard to the said matter as it may in its sole and absolute discretion deem appropriate and to do all such acts, deeds, matters and things as may be required to give effect to this resolution.”

“RESOLVED FURTHER THAT the Board of Directors of the Bank be and is hereby authorized to delegate all or any of its powers herein conferred, to any Committee of Board of Directors of the Bank or any one or more of the Directors or Executives of the Bank or any Committee of the Executives of the Bank, for giving effect to this resolution.”

12. Increase in the Authorized Share Capital and consequent amendment to the Memorandum of Association of the Bank

To consider, and if thought fit, to pass the following resolution as an Ordinary Resolution:

“RESOLVED THAT pursuant to the provisions of Section 61 read with Section 13 of the Companies Act, 2013 and other applicable provisions, if any, of the Companies Act, 2013, including any statutory modification(s) thereof and subject to the approval of Reserve Bank of India, the Authorised Share Capital of the Bank, be and is hereby increased from Rs. 500,00,00,000 (Rupees Five Hundred Crore only) comprising 250,00,00,000 equity shares of face value of Rs. 2/- each to Rs. 800,00,00,000 (Rupees Eight Hundred Crore only) comprising 400,00,00,000 equity shares of face value of Rs. 2/- each AND THAT the existing Clause 5 of the Memorandum of Association of the Bank be deleted and in place thereof the following new Clause be substituted –

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5. The Authorised Share Capital of the Bank is Rs. 800,00,00,000 (Rupees Eight Hundred Crore only) comprising 400,00,00,000 equity shares of face value of Rs. 2/- each with power to increase or decrease the Capital.”

13. Raising of Tier I Capital of the Bank through Issuance of Securities

To consider and, if thought fit, to pass the following Resolution, with or without modification(s) as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Sections 23, 41, 42, 62(1)(c) and other applicable provisions, if any, of the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014, as amended, the Companies (Share Capital and Debentures) Rules, 2014, as amended and other applicable rules made thereunder, including any statutory modification(s) or re-enactment(s) thereof for the time being in force (the “Act”), the Banking Regulation Act, 1949, as amended, the Foreign Exchange Management Act, 1999, as amended, Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 as amended, and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, as amended, the Depository Receipts Scheme, 2014, the current Consolidated FDI Policy issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, Government of India and amended from time to time, the Master Directions – Issue and Pricing of Shares by Private Sector , Directions, 2016, the Master Directions – Ownership in Private Sector Banks, Directions, 2016, the rules, regulations, guidelines, notifications and circulars, if any, prescribed by the Government of India, Reserve Bank of India (the “RBI”), the Registrar of Companies, Kerala, the stock exchanges where the equity shares of The Federal Bank Limited (the “Bank”) are listed, the Securities and Exchange Board of India (the “SEBI”) including the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (the “ICDR Regulations”) or any other competent authority, whether in India or abroad, from time to time, to the extent applicable including enabling provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “Listing Regulations”), and in accordance with the provisions of the Memorandum and Articles of Association of the Bank and subject to approvals, consents, permissions and sanctions as might be required from various regulatory authorities (including those noted above) and subject to such conditions as might be prescribed while granting such approvals, consents, permissions and sanctions and which may be agreed to by, the Board of Directors of the Bank (hereinafter referred to as the “Board”, which term shall be deemed to include any Committee(s) constituted/to be constituted by the Board to exercise its powers including the powers conferred by this Resolution), the consent, authority and approval of the shareholders of the Bank, be and is hereby accorded to the Board to create, offer, issue and allot (including with the reservation on firm allotment and/or competitive basis of such part of the issue and for such categories of persons as may be permitted by law then applicable) from time to time in one or more tranches, with or without green shoe option, in the course of domestic and/ or international offering(s) in one or more foreign markets, by way of a rights issue to the existing members of the Bank (whether resident or non-resident), Further Public Offer (“FPO”), preferential issue, qualified institutions placement (“QIP”), private placement/ private placement in public equity or a combination thereof of equity shares of Rs 2/- each (the “Equity Shares”) or through an issuance of Global Depository Receipts (“GDRs”), American Depository Receipts (“ADRs”), Foreign Currency Convertible Bonds (“FCCBs”), fully convertible debentures/partly convertible debentures, and/or any other financial instruments or securities convertible into Equity Shares with or without detachable or non-detachable warrants with a right exercisable by the warrant holders to convert or subscribe to the Equity Shares or otherwise, in registered or bearer form, whether rupee denominated or denominated in foreign currency

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(hereinafter collectively referred to as the “Securities”) or any combination of Securities, to all eligible investors, including residents and/or non-residents and/or institutions/banks and/or incorporated bodies and/or individuals and/or trustees and/or stabilizing agent or otherwise, Qualified Institutional Buyers as defined under the ICDR Regulations (“QIBs”), foreign investors, Foreign Institutional Investors (“FIIs”), Foreign Portfolio Investors (“FPIs”), Foreign Corporate Bodies (FCBs)/Companies/Mutual Funds/Pension Funds/Venture Capital Funds/Banks, to all or any other category of investors who are authorized to invest in the Securities of the Bank as per extant regulations/guidelines or any combination of the above as may be deemed appropriate by the Board in its absolute discretion and whether or not such investors are members of the Bank (collectively the “Investors”), through one or more prospectus and/or letter of offer or circular or placement document, on such terms and conditions considering the prevailing market conditions and other relevant factors wherever necessary, for an amount not exceeding in the aggregate Rs. 4000 Crore (Rupees Four Thousand Crore only) or its equivalent amount in such foreign currencies as may be necessary, inclusive of any premium and green shoe option attached thereto, at such price or prices, (whether at prevailing market price(s) or at permissible discount or premium to market price(s) in terms of applicable regulations) and on such terms and conditions at the Board’s absolute discretion including the discretion to determine the categories of Investors, considering the prevailing market conditions and other relevant factors wherever necessary, to whom the offer, issue and allotment of Securities shall be made to the exclusion of others, in such manner, including allotment to stabilizing agent in terms of green shoe option, if any, exercised by the Bank, and where necessary in consultation with the book running lead managers and/or underwriters and/or stabilizing agent and/ or other advisors or otherwise on such terms and conditions, including issue of Securities as fully or partly paid, making of calls and manner of appropriation of application money or call money, in respect of different class(es) of investor(s) and/ or in respect of different Securities, deciding of other terms and condition like number of securities to be issued, face value, number of equity shares to be allotted on conversion/redemption/extinguishment of debt(s), rights attached to the warrants, period of conversion, fixing of record date or book closure terms if any, as the Board may in its absolute discretion decide, in each case subject to applicable law.”

“RESOLVED FURTHER THAT in case of issue and allotment of Securities by way of QIP in terms of Chapter VIII of the ICDR Regulations (hereinafter referred to as “Eligible Securities” within the meaning of the ICDR Regulations): i. the allotment of the Eligible Securities, or any combination of the Eligible Securities as may be decided by the Board, shall be completed within 12 months from the date of this resolution or such other time as may be allowed under the ICDR Regulations; ii. the Equity Shares issued shall rank pari passu in all respects including entitlement to dividend with the existing Equity Shares of the Bank in all respects as may be provided under the terms of issue and in accordance with the placement document(s); iii. in the event Equity Shares are issued, the relevant date for the purpose of pricing of the Equity Shares to be issued, shall be the date of the meeting in which the Board or Committee of Directors duly authorized by the Board decides to open the proposed issue of Equity Shares, subsequent to the receipt of members’ approval in terms of provisions of Companies Act, 2013 and other applicable laws, rules, regulations and guidelines in relation to the proposed issue of the Equity Shares; in the event that Eligible Securities issued are eligible convertible securities, the relevant date for the purpose of pricing of the convertible securities to be issued, shall be the date of the meeting in which the Board or Committee of Directors duly authorized by the Board decides to open the proposed issue;

Page 7 of 36 iv. Any issue of Eligible Securities made by way of a QIP shall be at such price which is not less than the price determined in accordance with the pricing formula provided under Chapter VIII of the ICDR Regulations (the “QIP Floor Price”). The Board may, however, at its absolute discretion, issue Equity Shares at a discount of not more than five percent or such other discount as may be permitted under applicable regulations to the QIP Floor Price;

v. The Equity Shares shall not be eligible to be sold for a period of 1 year from the date of allotment, except on a recognized stock exchange or except as may be permitted from time to time by the ICDR Regulations. vi.The total amount raised in such manner through the QIP, together with other QIP(s) made in the same financial year, if any, should not exceed five times the net worth of the Bank as per the audited Balance Sheet of the previous financial year.’’

“RESOLVED FURTHER THAT in the event the Securities are proposed to be issued as ADRs or GDRs, the pricing of the Securities and the relevant date, if any, for the purpose of pricing of the Securities to be issued pursuant to such issue shall be determined in accordance with the provisions of applicable law including the provisions of the Depository Receipts Scheme, 2014 (the “2014 Scheme”), the Foreign Exchange Management (Transfer or Issue of any Foreign Security) Regulations, 2004 and such other notifications, clarifications, circulars, guidelines, rules and regulations issued by relevant authorities (in each case including any statutory modifications, amendments or re-enactment(s) thereof).”

“RESOLVED FURTHER THAT in the event the Securities are proposed to be issued as FCCBs, the pricing of the Securities and the relevant date, if any, shall be determined in accordance with the provisions of the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 issued by the Ministry of Finance and such other notifications, clarifications, circulars, guidelines, rules and regulations issued by relevant authorities (in each case including any statutory modifications, amendments or re-enactment(s) thereof).”

“RESOLVED FURTHER THAT the issue to the holders of the Securities, which are convertible into or exchangeable with Equity Shares at a later date shall be, inter alia, subject to the following terms and conditions:

(a) in the event the Bank is making a bonus issue by way of capitalization of its profits or reserves prior to the allotment of the Equity Shares, the number of Equity Shares to be allotted shall stand augmented in the same proportion in which the equity share capital increases as a consequence of such bonus issue and the premium, if any, shall stand reduced pro tanto;

(b) in the event of the Bank making a rights offer by issue of Equity Shares prior to the allotment of the Equity Shares, the entitlement to the Equity Shares will stand increased in the same proportion as that of the rights offer and such additional Equity Shares shall be offered to the holders of the Securities at the same price at which they are offered to the existing members;

(c) in the event of merger, amalgamation, takeover or any other re-organization or restructuring or any such corporate action, the number of Equity Shares, the price and the time period as aforesaid shall be suitably adjusted; and

(d) in the event of consolidation and/or division of outstanding Equity Shares into smaller number of Equity Shares (including by way of stock split) or reclassification of the Securities into other securities and/or involvement in such other event or circumstances which in the opinion of concerned stock exchange requires such adjustments, necessary adjustments will be made.”

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“RESOLVED FURTHER THAT, without prejudice to the generality of the above, the aforesaid Securities may have such features and attributes or any terms or combination of terms in accordance with international practices to provide for the tradability and free transferability thereof as per the prevailing practices and regulations in the capital markets including but not limited to the terms and conditions in relation to payment of dividend, issue of additional Equity Shares, variation of the conversion price of the Securities or period of conversion of Securities into Equity Shares during the duration of the Securities and the Board be and is hereby authorized, in its absolute discretion, in such manner as it may deem fit, to dispose-off such of the Securities that are not subscribed.”

“RESOLVED FURTHER THAT in pursuance of the aforesaid resolutions the Equity Shares that may be issued by the Company (including issuance of the Equity Shares pursuant to conversion of any Securities, as the case may be in accordance with the terms of the offering) shall rank pari passu with the existing Equity Shares of the Company in all respects.”

“RESOLVED FURTHER THAT, for the purpose of giving effect to any offer, issue or allotment of Equity Shares or Securities or instruments representing the same, as described above, the Board be and is hereby authorized on behalf of the Bank to do all such acts, deeds, matters and things, as it may, in its absolute discretion, deem necessary or desirable for such purpose, including without limitation, the determination of the nature of the issuance, terms and conditions for issuance of Securities including the number of Securities that may be offered in domestic and international markets and proportion thereof, issue price and discounts as permitted under applicable law, premium amount on issue/conversion of the Securities, if any, rate of interest, timing for issuance of such Securities and shall be entitled to vary, modify or alter any of the terms and conditions as it may deem expedient, entering into and executing arrangements for managing, underwriting, marketing, listing, trading and entering into and executing arrangements with Merchant Bankers, Lead managers, legal advisors, depository, custodian, registrar, stabilizing agent, paying and conversion agent, trustee, escrow agent and executing other agreements, including any amendments or supplements thereto, as necessary or appropriate and to finalize, approve and issue any document(s) or agreements, including but not limited to prospectus and/or letter of offer and/or circular or placement document, registration statement, and filing of such documents (in draft or final form) with any Indian or foreign regulatory authority or stock exchanges, including RBI and sign all deeds, documents and writings and to pay any fees, commissions, remuneration, expenses relating thereto and with power on behalf of the Bank to settle all questions, difficulties or doubts that may arise in regard to the issue, offer or allotment of Securities and take all steps which are incidental and ancillary in this connection, including in relation to utilization of the issue proceeds, as it may in its absolute discretion deem fit without being required to seek further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto expressly by the authority of this resolution and all actions taken by the Board or any duly authorised committee constituted by the Board to exercise its powers, in connection with any matter(s) referred to or contemplated in any of the foregoing resolutions be and are hereby approved, ratified and confirmed in all respects.”

“RESOLVED FURTHER THAT, without prejudice to the generality of the above, for the purpose of giving effect to any offer, issue or allotment of Equity Shares or Securities or instruments representing the same, as described above, the Board be and is hereby authorized on behalf of the Bank to seek listing of any or all of such Securities on one or more Stock Exchanges in India or outside India and the listing of Equity Shares underlying the ADRs and/or GDRs on the Stock Exchanges in India.”

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“RESOLVED FURTHER THAT

i. the offer, issue and allotment of the aforesaid Equity Shares shall be made at such time or times as the Board may in its absolute discretion decide, subject, however, to applicable guidelines, notifications, rules and regulations; ii. the Equity Shares to be issued by the Bank as stated aforesaid shall rank pari-passu with all existing Equity Shares of the Bank; iii. the Board be and is hereby authorized to decide and approve the other terms and conditions of the issue of the above mentioned Equity Shares and also shall be entitled to vary, modify or alter any of the terms and conditions, including size of the issue(within the limit approved by the shareholders), as it may deem expedient; iv. the Board be and is hereby authorized to do all such acts, deeds, matters and things including but not limited to finalization and approval of the preliminary as well as final offer document(s), placement document or offering circular, as the case may be, execution of various transaction documents, as it may in its absolute discretion deem fit and to settle all questions, difficulties or doubts that may arise in regard to the issue, offer or allotment of Securities and take all steps which are incidental and ancillary in this connection, including in relation to utilization of the issue proceeds, as it may in its absolute discretion deem fit without being required to seek further consent or approval of the members or otherwise to the end and intent that the members shall be deemed to have given their approval thereto expressly by the authority of this resolution.”

“RESOLVED FURTHER THAT the Board be and is hereby authorized to delegate all or any its powers herein conferred by this resolution to any Committee of Director or, subject to applicable law, any Director(s) or any one or more executives of the Bank to give effect to the above resolutions.”

14. Alteration of Object Clauses of Memorandum of Association

To consider and, if thought fit, to pass the following Resolution, with or without modification(s) as a Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 13 and other applicable provisions, if any, of Companies Act, 2013, read with applicable Rules made thereunder (including any statutory modifications or re-enactment thereof, for the time being in force), Banking Regulation Act, 1949, Banking Laws (Amendment) Act, 2012, guidelines of Reserve Bank of India (“RBI”) and subject to the necessary approvals required, in this regard from RBI and the approval of Registrar of Companies (ROC),if any and subject further to such other terms, conditions, stipulations, alterations, amendments or modifications as may be required, specified or suggested by RBI, the Board of Directors (herein after referred to as “the Board”, which term shall include any of its duly authorized Committee or individual Director) is hereby authorized to accept such terms, conditions, stipulations, alterations, amendments or modifications as it may deem fit and consent of the Members, be and is hereby accorded to the alteration and amendment of the Bank's Memorandum of Association in the manner and to the extent hereinafter provided:

I. The existing sub - Clause “c” of Clause “3 (A)” “OBJECTS OF THE COMPANY TO BE PURSUED BY THE BANK IMMEDIATELY ON ITS INCORPORATION” be altered by replacing the same with the following new Clause 3 (A) (c) as under;

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The borrowing, raising or taking up of money, the lending or advancing of money either upon or without security, the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hundies, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures, certificates, scrips and other instruments, and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller’s cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying, selling and dealing in derivatives; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding, issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others; the negotiating of loans and advances; the receiving of all kinds of bonds, scrips, or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities;

II. The existing sub - Clause “r” of Clause “3 (B)” “OBJECTS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE 3.A ARE” be altered by replacing the same with the following new Clause 3 (B) (r) as under;

To join, float, establish, promote, acquire or procure incorporation, formation or setting up of concerns and undertakings whether as subsidiary company(ies), joint venture(s), associate(s), partnership(s), limited liability partnership(s), or any other association of persons for the purpose of carrying on the business of leasing, hire purchase, merchant banking, insurance, factoring, executor and trusteeship, stock broking, portfolio management, managing issues, acting as Registrars to Issue and Transfer Agents, housing finance or engaging in any business which is permissible for a Banking Company to undertake and such other business as can be carried on in unison with one or more of the objects of the Bank;

III. To insert the following new sub-clause “u” after the existing sub-clause “t” under Clause 3 (B) “OBJECTS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE 3.A ARE” as under;

To purchase, acquire, sell, dispose of, deal or trade in bullion and to purchase, sell, dispose of, deal or trade in derivative instruments including futures, forwards, options, swaps, caps, collars, floors, swap options, bond options or any other derivative instruments whether traded on any market or exchange or otherwise for proprietary trading activities or for any person or persons (whether individuals, firms, companies, bodies corporate, Government, State, Sovereign, public body or authority, supreme, local or otherwise or any other form of incorporated/unincorporated entities) whether in the private or public sector.

By Order of the Board of Directors

Sd/-

Samir P Rajdev Company Secretary Membership No. A17849 Aluva, June 19, 2020

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NOTES

1. In view of the continuing Covid-19 pandemic, the Ministry of Corporate Affairs (“MCA”) has vide its circular dated May 5, 2020 read with circulars dated April 8, 2020 and April 13, 2020 (collectively referred to as “MCA Circulars”) permitted the holding of the Annual General Meeting (“AGM”) through VC / OAVM, without the physical presence of the Members. In compliance with the provisions of the Companies Act, 2013 (“Act”), SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations”) and MCA Circulars, the AGM of the Bank is being held through VC / OAVM.

2. The relevant details, pursuant to Regulations 26(4) and 36(3) of the SEBI Listing Regulations and Secretarial Standard on General Meetings issued by the Institute of Company Secretaries of India, in respect of Director seeking appointment/ re-appointment at this AGM is annexed.

3. Pursuant to the provisions of the Act, a Member entitled to attend and vote at the AGM is entitled to appoint a proxy to attend and vote on his/her behalf and the proxy need not be a Member of the Company. Since this AGM is being held pursuant to the MCA Circulars through VC / OAVM, physical attendance of Members has been dispensed with. Accordingly, the facility for appointment of proxies by the Members will not be available for the AGM and hence the Proxy Form and Attendance Slip are not annexed to this Notice.

4. Institutional / Corporate Shareholders (i.e., other than individuals / HUF, NRI etc.) are required to send a scanned copy (PDF/JPG Format) of its Board or governing body Resolution/Authorization etc., authorizing its representative to attend the AGM through VC / OAVM on its behalf and to vote through remote e-voting. The said Resolution/Authorization shall be sent to the Scrutinizer by email through its registered email address to [email protected] with a copy marked to [email protected]

5. The Register of Members of the Bank will remain closed from Saturday, July 11, 2020 to Thursday, July 16, 2020 (both days inclusive) for the purpose of AGM.

6. The Bank has fixed Friday, July 10, 2020 as the ‘Cut-off Date’ to record the entitlement of the shareholders to cast their voting through remote e-voting/ e-voting during the AGM.

7. Any person who is not a member on the cut-off date should treat this notice for information purposes only.

8. As per Regulation 40 of SEBI Listing Regulations, as amended, securities of listed companies can be transferred only in dematerialized form with effect from, April 01, 2019, except in case of request received for transmission or transposition of securities. In view of this and to eliminate all risks associated with physical shares and for ease of portfolio management, members holding shares in physical form are requested to consider converting their holdings to dematerialized form. Members can contact the Bank’s Secretarial Department (E-mail id– [email protected]) or Bank’s Registrars and Transfer Agents, Integrated Registry Management Services Private Limited (II Floor Kences Towers, No.1 Ramakrishna Street, North Usman Road, T Nagar, Chennai – 600017, Ph – 044-28140801, E-mail – [email protected]) for assistance in this regard.

9. To support the ‘Green Initiative’, Members who have not yet registered their email addresses are requested to register the same with their DPs in case the shares are held by them in electronic form and with Integrated Registry Management Services Private Limited in case the shares are held by them in physical form.

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10. Members are requested to intimate changes, if any, pertaining to their name, postal address, email address, telephone/ mobile numbers, Permanent Account Number (PAN), mandates, nominations, power of attorney, bank details such as name of the bank and branch details, bank account number, MICR code, IFSC code, etc., to their DPs in case the shares are held by them in electronic form and to Integrated Registry Management Services Private Limited in case the shares are held by them in physical form. The process for registration of e-mail address is provided below:

Send a request to the Registrar and Transfer Agents of the Bank, Integrated Registry Management Services Private Limited at [email protected], in the prescribed form “E-mail/ Address Updation Request Form” available in Physical Holding the website of the Bank at Shareholders Section, along with PAN (self- attested scanned copy of PAN card) and AADHAR (self-attested scanned copy of Aadhar Card) for registering email address.

Please contact your Depository Participant (DP) and register your email Demat Holding address in your demat account, as per the process advised by your DP.

11. As per the provisions of Section 72 of the Act, the facility for making nomination is available for the Members in respect of the shares held by them. Members who have not yet registered their nomination are requested to register the same by submitting Form No. SH-13. The said form can be downloaded from the Bank’s website, www.federalbank.co.in under Section “Shareholders Information.” Members are requested to submit the said details to their DP in case the shares are held by them in electronic form and to Integrated Registry Management Services Private Limited in case the shares are held in physical form.

12. Members holding shares in physical form, in identical order of names, in more than one folio are requested to send to the Bank or Integrated Registry Management Services Private Limited, the details of such folios together with the share certificates for consolidating their holdings in one folio. A consolidated share certificate will be issued to such Members after making requisite changes.

13. In case of joint holders, the Member whose name appears as the first holder in the order of names as per the Register of Members of the Bank will be entitled to vote at the AGM.

14. Members seeking any information with regard to the accounts or any matter to be placed at the AGM are requested to write to the Bank on or before July 01, 2020 via email, [email protected] and the same will be replied by the Bank suitably.

15. Members are requested to note that, dividends if not encashed for a consecutive period of 7 years from the date of transfer to Unpaid Dividend Account of the Bank, are liable to be transferred to the Investor Education and Protection Fund (“IEPF”). The shares in respect of such unclaimed dividends are also liable to be transferred to the demat account of the IEPF Authority. In view of this, Members are requested to claim their dividends from the Bank, within the stipulated timeline. The Members, whose unclaimed dividends/shares have been transferred to IEPF, may claim the same by making an online application to the IEPF Authority in web Form No. IEPF-5 available on www.iepf.gov.in. For details, please refer to corporate governance report which is a part of this Annual Report and Bank’s website, www.federalbank.co.in.

16. Relevant documents referred to in the accompanying Notice calling the AGM are available on the website of the Bank for inspection by the Members. The Certificate from the Central Statutory

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Auditors of the Bank confirming the compliance of the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 with respect to the Bank’s Employee Stock Option Scheme will be available for inspection through electronic mode on the website of the Bank.

17. In compliance with the aforesaid MCA Circulars and SEBI Circular dated May 12, 2020, Notice of the AGM along with the Annual Report 2019-20 is being sent only through electronic mode to those Members whose email addresses are registered with the Bank/ Depositories. Members may note that the Notice and Annual Report 2019-20 will also be available on the Bank’s website, www.federalbank.co.in, websites of the Stock Exchanges i.e., BSE Limited and National Stock Exchange of India Limited at www.bseindia.com and www.nseindia.com respectively, and on the website of NSDL, https://www.evoting.nsdl.com.

18. Members attending the AGM through VC / OAVM shall be counted for the purpose of reckoning the quorum under Section 103 of the Act.

19. Since the AGM will be held through VC / OAVM, the Route Map is not annexed in this Notice.

20. Instructions for e-voting and joining the AGM are as follows:

A. VOTING THROUGH ELECTRONIC MEANS

In compliance with the provisions of Section 108 of the Act, read with Rule 20 of the Companies (Management and Administration) Rules, 2014, as amended from time to time, and Regulation 44 of the SEBI Listing Regulations, the Members are provided with the facility to cast their vote electronically, through the e-voting services provided by NSDL, on all the resolutions set forth in this Notice. The instructions for e-voting are given herein below.

The remote e-voting period commences on Monday, July 13, 2020 (9:00 a.m. IST) and ends on Wednesday, July 15, 2020 (5:00 p.m. IST). During this period, Members holding shares either in physical form or in dematerialized form, as on Friday, July 10, 2020 i.e., cut-off date, may cast their vote electronically. The e-voting module shall be disabled by NSDL for voting thereafter. Those Members, who will be present in the AGM through VC / OAVM facility and have not cast their vote on the Resolutions through remote e-voting and are otherwise not barred from doing so, shall be eligible to vote through e-voting system during the AGM.

The Board of Directors has appointed CS Sivakumar P (Membership No. 3050), Managing Partner of SEP & Associates, Practicing Company Secretaries as the Scrutinizer to scrutinize the voting during the AGM and remote e-voting process in a fair and transparent manner.

The Members who have cast their vote by remote e-voting prior to the AGM may also attend/ participate in the AGM through VC / OAVM but shall not be entitled to cast their vote again.

The voting rights of Members shall be in proportion to their shares in the paid-up equity share capital of the Bank as on the cut-off date.

Any person, who acquires shares of the Bank and becomes a Member of the Bank after sending of the Notice and holding shares as of the cut-off date, may obtain the login ID and password by sending a request at [email protected]. However, if he/she is already registered with NSDL for remote e-voting then he/she can use his/her existing User ID and password for casting the vote.

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The details of the process and manner for remote e-voting are explained herein below:

Step 1: Log-in to NSDL e-Voting system at https://www.evoting.nsdl.com/

How to Log-in to NSDL e-Voting website?

1. Visit the e-Voting website of NSDL. Open web browser by typing the following URL: https://www.evoting.nsdl.com/ either on a Personal Computer or on a mobile. 2. Once the home page of e-Voting system is launched, click on the icon “Login” which is available under ‘Shareholders’ section. 3. A new screen will open. You will have to enter your User ID, your Password and a Verification Code as shown on the screen. Alternatively, if you are registered for NSDL eservices i.e. IDEAS, you can log-in at https://eservices.nsdl.com/ with your existing IDEAS login. Once you log-in to NSDL eservices after using your log-in credentials, click on e-Voting and you can proceed to Step 2 i.e. Cast your vote electronically. 4. Your User ID details are given below :

Manner of holding shares i.e. Demat Your User ID is: (NSDL or CDSL) or Physical

a) For Members who hold shares in demat 8 Character DP ID followed by 8 Digit account with NSDL. Client ID

For example if your DP ID is IN300*** and Client ID is 12****** then your user ID is IN300***12******.

b) For Members who hold shares in demat 16 Digit Beneficiary ID account with CDSL. For example if your Beneficiary ID is 12************** then your user ID is 12**************

c) For Members holding shares in EVEN Number followed by Folio Number Physical Form. registered with the company

For example if folio number is 001*** and EVEN is 101456 then user ID is 101456001***

5. Your password details are given below: a) If you are already registered for e-Voting, then you can user your existing password to login and cast your vote.

b) If you are using NSDL e-Voting system for the first time, you will need to retrieve the ‘initial password’ which was communicated to you. Once you retrieve your ‘initial password’, you need to enter the ‘initial password’ and the system will force you to change your password. c) How to retrieve your ‘initial password’?

(i) If your email ID is registered in your demat account or with the company, your ‘initial password’ is communicated to you on your email ID. Trace the

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email sent to you from NSDL from your mailbox. Open the email and open the attachment i.e. a .pdf file. Open the .pdf file. The password to open the .pdf file is your 8 digit client ID for NSDL account, last 8 digits of client ID for CDSL account or folio number for shares held in physical form. The .pdf file contains your ‘User ID’ and your ‘initial password’.

(ii) If your email ID is not registered, please follow steps mentioned under point No. 10, of page 13 of AGM Notice.

6. If you are unable to retrieve or have not received the “ Initial password” or have forgotten your password:

a) Click on “Forgot User Details/Password?”(If you are holding shares in your demat account with NSDL or CDSL) option available on www.evoting.nsdl.com. b) Physical User Reset Password?” (If you are holding shares in physical mode) option available on www.evoting.nsdl.com. c) If you are still unable to get the password by aforesaid two options, you can send a request at [email protected] mentioning your demat account number/folio number, your PAN, your name and your registered address and scanned copy of Share Certificates (physical holders). d) Members can also use the OTP (One Time Password) based login for casting the votes on the e-Voting system of NSDL.

7. After entering your password, tick on Agree to “Terms and Conditions” by selecting on the check box. 8. Now, you will have to click on “Login” button. 9. After you click on the “Login” button, Home page of e-Voting will open.

Step 2: Cast your vote electronically on NSDL e-Voting system.

How to cast your vote electronically on NSDL e-Voting system?

1. After successful login at Step 1, you will be able to see the Home page of e-Voting. Click on e- Voting. Then, click on Active Voting Cycles.

2. After click on Active Voting Cycles, you will be able to see all the companies “EVEN” in which you are holding shares and whose voting cycle is in active status.

3. Select “EVEN” of the Bank, which is 113014.

4. Now you are ready for e-Voting as the Voting page opens.

5. Cast your vote by selecting appropriate options i.e. assent or dissent, verify/modify the number of shares for which you wish to cast your vote and click on “Submit” and also “Confirm” when prompted.

6. Upon confirmation, the message “Vote cast successfully” will be displayed.

7. You can also take the printout of the votes cast by you by clicking on the print option on the confirmation page.

8. Once you confirm your vote on the resolution, you will not be allowed to modify your vote.

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9. In case of any queries, you may refer the Frequently Asked Questions (FAQs) for Shareholders and e-voting user manual for Shareholders available at the download section of www.evoting.nsdl.com or call on toll free no.: 1800-222-990 or send a request at [email protected]

B. INSTRUCTIONS FOR MEMBERS FOR ATTENDING THE AGM THROUGH VC / OAVM ARE AS UNDER:

1. Members will be able to attend the AGM through VC / OAVM provided by NSDL at https://www.evoting.nsdl.com by using their remote e-voting login credentials and selecting the EVEN for Bank’s AGM.

2. Members who do not have the User ID and Password for e-voting or have forgotten the User ID and Password may retrieve the same by following the remote e-voting instructions mentioned in the Notice. Further, Members can also use the OTP based login for logging into the e-voting system of NSDL

3. Facility of joining the AGM through VC / OAVM shall open 30 minutes before the time scheduled for the AGM, will be available for Members on first come first served basis and would not be closed till the expiry of 30 minutes after the meeting.

4. Members who need assistance before or during the AGM, can contact NSDL on [email protected]/ 1800-222-990 or contact Mr. Amit Vishal, Senior Manager – NSDL at [email protected]/, 022-24994360/ or Ms. Pallavi Mhatre, Manager - NSDL at [email protected], 022-24994545. Alternatively, the members can also write to, National Securities Depository Limited, Trade World, 'A' Wing, 4th Floor, Kamala Mills Compound, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013.

5. Members who would like to express their views or ask questions during the AGM may register themselves as a speaker by sending their request from their registered email address mentioning their name, DP ID and Client ID/folio number, PAN, mobile number at [email protected] from July 04, 2020 (9:00 a.m. IST) to July 08, 2020 (5:00 p.m. IST). Those Members who have registered themselves as a speaker will only be allowed to express their views/ask questions during the AGM. The Company reserves the right to restrict the number of speakers depending on the availability of time for the AGM.

6. Members are encouraged to join the Meeting through Laptops for better experience. Further Members will be required to enable Camera and use Internet with a good speed to avoid any disturbance during the meeting.

Other Instructions

1. The Scrutinizer shall, immediately after the conclusion of voting at the AGM, first count the votes cast during the AGM, thereafter unblock the votes cast through remote e-voting and make, not later than 48 hours of conclusion of the AGM, a consolidated Scrutinizer’s Report of the total votes cast in favour or against, if any, to the Chairperson or a person authorised by him in writing, who shall countersign the same.

2. The result declared along with the Scrutinizer’s Report shall be placed on the Bank’s website www.federalbank.co.in and on the website of NSDL https://www.evoting.nsdl.com immediately. The Bank shall simultaneously forward the results to National Stock Exchange of India Limited and BSE Limited, where the shares of the Bank are listed.

By Order of the Board of Directors

Sd/-

Samir P Rajdev Company Secretary Membership No. A17849 Aluva, June 19, 2020

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EXPLANATORY STATEMENT PURSUANT TO SECTION 102 OF THE COMPANIES ACT, 2013

The following statement sets out all material facts relating to certain ordinary business and the special businesses mentioned in the accompanying Notice:

Item no. 3

The Explanatory Statement is being given in respect of item No. 3 of the Notice as a matter of good governance.

M/s. B S R & Co. LLP, Chartered Accountants, Mumbai, together with M/s M M Nissim & Co, Chartered Accountants, Mumbai, were appointed as Joint Statutory Central Auditors of the Bank by the Members at their 88th Annual General Meeting (AGM) held on July 25, 2019 to hold office till conclusion of the 89th AGM. M/s. B S R & Co. LLP together with M/s M M Nissim & Co has been auditors of the Bank for four consecutive years. As per the provisions of RBI Circular No.DBS.No.ARS.BC.8 08.91.001/2000-2001 dated January 30, 2001, an audit firm is allowed to continue as the auditor of a bank for a continuous period of four years only. Hence they would retire at the conclusion of the 89th Annual General Meeting. The Audit Committee and the Board of Directors have placed on record their appreciation of the professional services rendered by M/s. B S R & Co. LLP and M/s M M Nissim & Co during their association with the Bank as its auditors.

Basis the recommendation of the Audit Committee in its meeting held on May 28, 2020, the Board of Directors of the Bank in its meeting held on May 28, 2020 have recommended the appointment of M/s. Varma & Varma, Chartered Accountants (Registration No. 004532S) for a period of four (4) years together with M/s. Borkar & Muzumdar, Chartered Accountants (Registration No. 101569W) for a period of 3 years as Joint Statutory Central Auditors of the Bank from the conclusion of 89th AGM till the conclusion of 93rd and 92nd AGM respectively, for the approval of RBI and the shareholders of the Bank.

As per the requirement of the Companies Act, 2013 (the Act) M/s. Varma & Varma, Chartered Accountants and M/s. Borkar & Muzumdar, Chartered Accountants have confirmed that their appointment if made would be within the limits specified under Section 141(3) (g) of the Act and they are not disqualified to be appointed as statutory auditor/s in terms of the provisions of the proviso to Section 139(1), Section 141(2) and Section 141(3) of the Act and the provisions of the Companies (Audit and Auditors) Rules, 2014.

RBI vide its letter DOS. ARG.No. PS-8/08.09.005/2019-20 dated June 04, 2020 had granted approval for appointment of M/s. Varma & Varma, Chartered Accountants and M/s. Borkar & Muzumdar, Chartered Accountants for the year 2020-21 for their first year.

Accordingly, approval of the members is requested for appointment of M/s. Varma & Varma, Chartered Accountants for a period of four (4) years together with M/s. Borkar & Muzumdar, Chartered Accountants for a period of three (3) years as Joint Statutory Central Auditors of the Bank from the conclusion of 89th AGM till the conclusion of 93rd and 92nd AGM respectively on a remuneration proposed at Rs. 1,30,00,000/- (Rupees One Crore Thirty Lakhs only) plus outlays and taxes at the applicable rates for the purpose of audit for the Financial Year 2020-2021, and for such remuneration and expenses thereafter as may be mutually agreed between the Bank and the said Statutory Auditors and as may be further approved by the Board from time to time, with power to the Board, including relevant Committee(s) thereof, to alter and vary the terms and conditions of appointment, etc., including by reason of necessity on account of conditions as may be stipulated by

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RBI and / or any other authority, in such manner and to such extent as may be mutually agreed with the Statutory Auditors. The remuneration paid to the Statutory Auditors will be disclosed in the Corporate Governance Report as well as the Annual Financial Statements of the Bank on an annual basis.

M/s. Varma & Varma was established by Mr. Kerala Varma Kochunniappan Thampuran and Mr. Kerala Varma Kunhappan Thampuran, two members of the erstwhile Royal Family of Cochin (now Kochi), Kerala on June 17, 1935. The firm has Statutory Central Auditor experience of Public Sector Banks like , , , , Punjab & Sind Bank, erstwhile and erstwhile . The firm was our Statutory Central Auditor during FY 2001-02 to 2003-04 and then from FY 2008-09 to 2011-12. They have done the Statutory Central Audit of other Private Sector Banks like and Catholic Syrian Bank. The firm has 8 branches at Bangalore, Chennai, Hyderabad, Mumbai, Trivandrum, Thrissur, Kozhikode & Kannur with Head Office at Kochi. The firm has experience of around 51 years as Statutory Central Auditor of Banks.

M/s. Borkar & Muzumdar has Statutory Central Audit experience in , Bank of India, , of India, Reserve Bank of India, SIDBI, erstwhile and various Co-operative Banks. The firm has 14 Branches at Nagpur, Bangalore, Goa, Pune, Ahmedabad, Bilaspur, Bhopal, Jabalpur, Raipur, New Delhi, Bhubaneswar, Jaipur, Indore, Kolkata with Head Office at Mumbai. The firm has experience of around 24 years as Statutory Central Auditor of Banks.

The Audit Committee and Board of Directors recommend the resolution in relation to appointment of Joint Statutory Central Auditors of the Bank as set out in item No. 3 for approval of the Members by way of an Ordinary Resolution.

None of the Directors, Key Managerial Personnel of the Bank and their relatives are in any way concerned or interested, financially or otherwise in the passing of the Resolution at Item No. 3 of the accompanying Notice.

Item no.4

In accordance with the provisions of Section 139 and Section 143(8) of the Companies Act, 2013, RBI and other regulatory requirements, the shareholders of the Bank may authorize its Board of Directors to appoint branch auditors in consultation with the Bank’s Joint Statutory Central Auditors.

The Board of Directors recommends the resolution in relation to appointment and to fix the remuneration of branch auditors as set out in Item No. 4 for approval of the Members by way of an Ordinary Resolution.

None of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 4.

Item no. 2 & 5

Mr. Shyam Srinivasan (DIN: 02274773) has been serving as the Managing Director & CEO (‘MD & CEO’) of the Bank since September 23, 2010, in accordance with the provisions of the Articles of Association (‘AOA’) of the Bank, recommendation of Nomination, Remuneration, Ethics and compensation Committee and the Board of Directors and with the approval of the Members of the Bank and the Reserve Bank of India (‘RBI’), were obtained from time to time. His current tenure as MD & CEO of the Bank as approved by Members of the Bank and the RBI was valid upto September 22, 2019.

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Under his leadership, Federal Bank has achieved quality growth. He played a major role in kick- starting the Digital Journey of Federal Bank which is now a proven leader in the Non-Resident Indian segment dominating the remittance business. During his period, Bank is steadily evolving with exemplary business and financial outcomes as evidenced in the financial results.

Considering, the satisfactory performance achieved by the Bank till date under Mr. Shyam Srinivasan’s leadership, the Board of Directors at their meeting held on May 23, 2019 based on the provisions of the AOA and recommendation of Nomination, Remuneration, Ethics and Compensation Committee, had approved the re-appointment including terms of re-appointment as MD & CEO with effect from September 23, 2019 being the day after the expiry of the present term for a period of three (3) years which will be subject to receipt of approval from RBI and the Members of the Bank.

RBI vide letter DBR. Appt. No.2280/ 08.38.001/2019-20 dated September 21, 2019 had granted approval for re-appointment of Mr. Shyam Srinivasan as MD & CEO of the Bank for a period of one year w.e.f. September 23, 2019 till September 22, 2020. Further, RBI vide letter DBR. Appt. No. 3157/08.38.001/2019-20 dated October 29, 2019 approved the remuneration and other perquisites of Mr. Shyam Srinivasan effective from September 23, 2019 as stated below.

Items Remuneration 1. Salary Rs. 1,80,00,000 p.a.

2. Dearness Allowance Nil 3. House Rent allowance Nil 4. Entertainment Allowance During his tenure, he can use Bank’s Corporate Membership of one or more clubs (Two Corporate Club Memberships with current total subscription fee of Rs. 31,800 p.a.). Others Perquisites 1. Free furnished house Bank will provide free and furnished accommodation. Bank will bear cost of furnishing up to Rs. 10 Lakh. At the time of leaving the Bank the MD & CEO will have option of taking over furniture fittings, appliances etc at the book value at the Bank’s Book. 2. Free use of Bank’s Car for Free use of Bank’s car (with driver) a. Official Purpose (approx. Rs. 1.06 lakh p.a for fuel expenses. b. For private purposes on compensating the Bank with suitable amount 3. Provident Fund/ NPS 10% of pay, to be matched by MD’s contribution 4. Pension Not eligible 5. Gratuity As applicable (Currently INR 15,00,000) 6. Boarding & Lodging expenses Actual expenses incurred and certified by self 7. Halting Allowance Rs. 1000 per day if boarding expenses are not claimed. Rs. 2000 per day if boarding and lodging expenses are not claimed. 8. Medical Benefits During MD’s tenure actual expenses incurred including hospitalization in full for him, wife and dependent family members. This is however subject to any recoveries made arising out of his previous employments.

Upon the MD & CEO laying down his office after serving at least three years as MD & CEO, the Bank will pay or reimburse the full premiums payable/ paid on the policy or

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policies issued under a medical insurance plan covering hospitalization and other medical expenses incurred on the MD & CEO and his wife up to Rs. 10 lakh each per annum for life. However, if no insurance plan is available the entire medical expenses for self and his wife would be reimbursed by the Bank. Other Benefits 1. Salary of attendant at residence Reimbursement of actual salary up to Rs. 1.5 Lakh p.a. 2. Leave Encashment As applicable to other officers of the Bank. Encashment will be allowed once in the year (Currently Rs. 15 Lakh p.a.)

Further, RBI vide its letter DoR. Appt. No. 4910/08.38.001/2019-20 dated December 20, 2019 had approved grant of Rs. 40,00,000 (Rupees Forty Lakhs Only) as variable pay for FY 2018-19.

Further, in terms of appointment, he is liable to retire by rotation as per the provisions of Section 152 of the Companies Act, 2013 and being eligible offers himself for re-appointment.

Further, MD & CEO’s re-appointment is in terms of the Articles of Association of the Bank, and in compliance with the provisions of Section 10B, in particular, on account of Mr. Shyam Srinivasan having the requisite experience/expertise required under Section 10B and other applicable provisions of the Banking Regulation Act, 1949.

Accordingly, approval of the members is requested for re-appointment of Mr. Shyam Srinivasan as MD & CEO of the Bank for a period of one year w.e.f. September 23, 2019 till September 22, 2020 as per the aforesaid terms.

Additional information in respect of Mr. Shyam Srinivasan, pursuant to Regulation 36 the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Secretarial Standard on General Meetings (SS-2), is given at Annexure A to this Notice. Brief profile of Mr. Shyam Srinivasan is given at Annexure B to this Notice.

The Nomination, Remuneration, Ethics and Compensation Committee and Board of Directors recommends the resolution in relation to the re-appointment of Mr. Shyam Srinivasan as MD & CEO of the Bank as set out in item No. 2 & 5 for approval of the Members by way of an Ordinary Resolution.

Except Mr. Shyam Srinivasan or his relatives, none of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at item Nos. 2 & 5.

Item no. 6

Ms. Grace Koshie (DIN- 06765216) was re-appointed as an Independent Director of the Bank, for a period of three (3) years with effect from July 17, 2017 or till the date of her retirement whichever is earlier.

The Board on June 13, 2019 had appointed Ms. Grace Koshie as Part-Time Chairman of the Bank, subject to the approval from Reserve Bank of India. The Board of Directors further recommended the remuneration payable to Ms. Grace Koshie as Rs. 1,50,000/- per month (Rs.18,00,000/-(Rupees Eighteen Lakh only) per annum) in addition to payment of sitting fee for attending Board/Committees

Page 21 of 36 meetings. Reserve Bank of India vide its letter 3560/08.38.001/2019-20 dated November 07, 2019 approved the appointment and the terms and conditions of appointment of Ms. Grace Koshie as Part- Time Chairperson of the Bank effective from November 07, 2019 to November 21, 2021 (i.e., tenure as Chairperson of the Bank in pursuance of approval received by the Bank from the Reserve Bank of India).

Remuneration/Terms and Conditions of Ms. Grace Koshie, Part-Time Chairman of the Bank, as approved by RBI made effective from November 07, 2019 is shown below:

1. Salary 2. Dearness Allowance 3. House Rent allowance NA 4. Conveyance Allowance 5. Entertainment Allowance 6. Other allowances, if any(please specify) Rs. 1.50 lakh per month in addition to payment of sitting fee for attending Board/Committees meetings as per the existing siting fee paid to Directors Perquisites NA 1. Free furnished house 2. Free use of bank's car for i. Official purposes ii. For private purposes on compensating the bank with suitable amount 3. Provident Fund/ Gratuity/Pension 4. Travelling and Halting Allowances 5. Medical benefits 6. Other benefits, if any ( please specify) Leave

1. Casual Leave NA 2. Ordinary Leave 3. Sick Leave 4. Leave Fare Concession

The Board of Directors recommends the resolution to take on record the approval received from RBI including the terms of appointment of Ms. Grace Koshie (DIN: 06765216) as Part-Time Chairman of the Bank with effect from November 07, 2019 to November 21, 2021 and approves the payment of remuneration to Ms. Grace Koshie of Rs. 1.50 lakh per month (Rupees One Lakh Fifty Thousand only) per month (Rs. 18,00,000/- (Rupees Eighteen Lakh only) per annum) as set out in item No. 6 for approval of the Members by way of an Ordinary Resolution.

Except Ms. Grace Koshie or her relatives, none of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 6.

Item no. 7

The Members of the Bank at the Annual General Meeting (AGM) held on July 14, 2017 had approved the re-appointment of Ms. Grace Koshie (DIN- 06765216) as Non – Executive Independent Director, not liable to retire by rotation, for a period of three years with effect from July 17, 2017 or till the date of her retirement whichever is earlier. Further, in terms of Section 10B (1A) (i) of Banking Regulation Act, 1949, Reserve Bank of India vide letter DBR. Appt. No. 3560/08.38.001/2019-20 dated

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November 07, 2019 approved appointment of Ms. Grace Koshie as Part-Time Chairperson of the Bank with effect from November 07, 2019 till her current tenure as Director of the Bank i.e., November 21, 2021. Ms. Grace Koshie will complete her present term as Non – Executive Independent Director on July 16, 2020.

In terms of Section 160 of the Companies Act, 2013 the Bank has received a notice in writing from a Member signifying his intention to propose the candidature of Ms. Grace Koshie for the office of Non- Executive Non Independent Director of the Bank. Accordingly, the Board of Directors at its meeting held on June 09, 2020 on the recommendation of the Nomination, Remuneration, Ethics and Compensation Committee, and subject to approval of Members of the Bank, recommended the proposal for appointment of Ms. Grace Koshie as a Non-Executive Non Independent Director of the Bank with effect from July 17, 2020 till November 21, 2021.

Keeping in view, Ms. Grace Koshie’s rich and varied experience in the Industry, her involvement in the operations of the Bank over a long period of time, and her role in guiding the Bank through growth, the Board of Directors is of the opinion that it would be in the interest of the Bank to appoint her as a Non-Executive Non Independent Director of the Bank with effect from July 17, 2020 till November 21, 2021.

Additional information in respect of Ms. Grace Koshie, pursuant to Regulation 36 the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Secretarial Standard on General Meetings (SS-2), is given at Annexure A to this Notice. Brief profile of Ms. Grace Koshie is given at Annexure B to this Notice.

The Nomination, Remuneration, Ethics and Compensation Committee and Board of Directors recommends the resolution in relation to the appointment of Ms. Grace Koshie as Non-Executive Non Independent Director of the Bank as set out in Item No. 7 for approval of the Members by way of an Ordinary Resolution.

Except Ms. Grace Koshie or her relatives, none of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 7.

Item no. 8

Mr. Sudarshan Sen (DIN: 03570051), who has been appointed as an Additional Director (Independent) of the Bank w.e.f. February 11, 2020 pursuant to the provisions of Section 161 and other applicable provisions of the Companies Act, 2013 (the ‘Act’), holds office up to the date of this Annual General Meeting (AGM) of the Bank or the last date on which the AGM should have been held, whichever is earlier and is eligible for appointment. In terms of Section 160 of the Act, the Bank has received a notice in writing from a Member signifying his intention to propose the candidature of Mr. Sudarshan Sen for the office of Director. Mr. Sudarshan Sen has furnished consent/declarations for his appointment as required under the Act and the Rules thereunder.

The Nomination, Remuneration, Ethics and Compensation Committee had assessed the profile of Mr. Sudarshan Sen and having found him to be ‘fit and proper’ in terms of Reserve Bank of India’s Circular on ‘Fit and proper’ criteria for directors of banks and basis of the report of performance evaluation recommended his appointment to the Board of Directors. In terms of Sections 149, 152, 160 read with Schedule IV of the Act, the Board of Directors of the Bank, basis the recommendation of the Nomination, Remuneration, Ethics and Compensation Committee, have reviewed the profile of

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Mr. Sudarshan Sen and the declarations that he meets the criteria of independence as prescribed both under sub-section (6) of Section 149 of the Act, and under Regulation 16(1)(b) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Board is of opinion that he fulfills the criteria of independence. In the opinion of the Board, Mr. Sudarshan Sen meets the fit and proper criteria and is a person of integrity, and has the necessary knowledge, experience and expertise for being appointed as an Independent Director. Considering his vast expertise and knowledge in the field of Banking, Finance and Risk Management, it would be in the interest of the Bank that Mr. Sudarshan Sen is appointed as an Independent Director on the Board of the Bank.

Mr. Sudarshan Sen’s appointment is in compliance with the provisions of Section 10A of the Banking Regulation Act, 1949, in particular, on account of Mr. Sudarshan Sen having the requisite experience/ expertise required under Section 10A(2) of the Banking Regulation Act, 1949.

Additional information in respect of Mr. Sudarshan Sen, pursuant to Regulation 36 the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Secretarial Standard on General Meetings (SS-2), is given at Annexure A to this Notice. Brief profile of Mr. Sudarshan Sen is given at Annexure B to this Notice.

The Nomination, Remuneration, Ethics and Compensation Committee and Board of Directors recommends the resolution in relation to the appointment of Mr. Sudarshan Sen as Non-Executive Independent Director of the Bank as set out in Item No. 8 for approval of the Members by way of an Ordinary Resolution.

Except Mr. Sudarshan Sen or his relatives, none of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 8.

Item no. 9

Mr. Ashutosh Khajuria (DIN: 05154975) was re-appointed as the Executive Director of the Bank designated as “Executive Director & Chief Financial Officer” of the Bank for a period of 2 years, with effect from January 28, 2018. The current term of the Executive Director & Chief Financial Officer expired on January 27, 2020. Basis recommendation of Nomination, Remuneration, Ethics and Compensation Committee, the Board of Directors of the Bank at its meeting held on October 16, 2019 had approved the proposal for re- appointment of Mr. Ashutosh Khajuria as Executive Director of the Bank designated as “Executive Director & Chief Financial Officer” for a period up to 31.03.2021, from the end of his current tenure on 27.01.2020 based on revised terms and conditions/ compensation, subject to the approval of Reserve Bank of India and Shareholders of the Bank. Reserve Bank of India vide its letter no. DoR. Appt No. 5116/08.38.001/2019-20 dated December 27, 2019, approved the proposal for re- appointment of Mr. Ashutosh Khajuria as Executive Director with effect from January 28, 2020 to March 31, 2021 on such revised remuneration to be made effective from the said date of re-appointment.

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Remuneration/Terms and Conditions of Mr. Ashutosh Khajuria, Executive Director & Chief Financial Officer of the Bank, as approved by RBI is shown below:

Items Remuneration 1. Salary i. Basic Salary: Rs. 26,00,000 p.a. ii. Personal Fixed Pay: Rs. 54,00,000 p.a 2. Dearness Allowance Nil 3. House Rent allowance Leased accommodation @ Rs. 24,00,000 p.a. or own arrangement @ Rs. 24,00,000 p.a. 4. Entertainment Allowance Bank’s Corporate Membership of one club. (Maintenance fee of Rs. 12,000 p.a currently)

Perquisites 5. Free furnished house NA

6. Driver’s Wages Rs. 4,00,000 p.a (Cost of fuel of Rs. 5,00,000 p.a) 7. Provident Fund/ NPS 10% of Basic Salary (Rs. 2,60,000 p.a) 8. Pension Not eligible 9. Gratuity As per Rule/ Act (Currently Rs. 2,00,000) 10. a) Official Travel i. Highest class in train and business class by air for b) Boarding & Lodging expenses both domestic and foreign travel. ii. Actual expenses incurred supported by bills 11. Medical Benefits Reimbursement for medical expenses including hospitalization, in full for self & dependents 12. Personal Accident Insurance Coverage of Rs. 50,00,000 13. Telephone & Mobile & Ipad Actuals of cost and call charges 14. Leave Fare Concession Rs. 4,00,000 in lieu of LFC, whether availed or not 15. Leave Encashment 30 days encashment, once a year (currently Rs. 6,33,000) 16. Casual Leave 12 days in a calendar year 17. Privilege Leave 30 days for 11 months, can be accumulated up to 90 days

Further, RBI vide its letter DoR. Appt. No. 4910/08.38.001/2019-20 dated December 20, 2019 had approved grant of Rs. 22,00,000/- (Rupees Twenty Two Lakhs only) as variable pay for FY 18-19 as well as grant of 2,50,000 options at Rs. 98.70 per share, in tranches of 33%, 33% and 34% to Mr. Ashutosh Khajuria subject to fulfillment of the vesting conditions.

Accordingly, approval of the members is requested for re-appointment of Mr. Ashutosh Khajuria as Executive Director of the Bank, designated as Executive Director & Chief Financial Officer, with effect from January 28, 2020 to March 31, 2021 on such revised terms and conditions as given above.

Additional information in respect of Mr. Ashutosh Khajuria, pursuant to Regulation 36 the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Secretarial Standard on General Meetings (SS-2), is given at Annexure A to this Notice. Brief profile of Mr. Ashutosh Khajuria is given at Annexure B to this Notice.

The Nomination, Remuneration, Ethics and Compensation Committee and Board of Directors recommend the resolution in relation to the re-appointment of Mr. Ashutosh Khajuria as Executive Director of the Bank designated as “Executive Director & Chief Financial Officer as set out in item No. 9 for approval of the Members by way of an Ordinary Resolution.

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Except Mr. Ashutosh Khajuria or his relatives, none of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at item No.9.

Item no. 10

Basis recommendation of Nomination, Remuneration, Ethics & Compensation Committee, Board of Directors of the Bank at its meeting held on October 16, 2019 had approved the proposal for Elevation/Appointment of Ms. Shalini Warrier (DIN: 08257526), Chief Operating Officer as Executive Director of the Bank subject to the approval of Reserve Bank of India.

Reserve Bank of India vide its letter no. DoR. Appt No. 5658/08.38.001/2019-20 dated January 15, 2020, approved the proposal for appointment of Ms. Shalini Warrier, Chief Operating Officer as Executive Director of the Bank with effect from January 15, 2020 on such remuneration/terms and conditions as enumerated below.

Items Remuneration 1. Salary i. Basic Salary: Rs. 26,00,000 p.a. ii. Personal Fixed Pay: Rs. 54,00,000 p.a Dearness Allowance Nil House Rent allowance Leased accommodation @ Rs. 9,00,000 p.a. Entertainment Allowance Bank’s Corporate Membership of one club. (Yearly subscription fee of Rs. 25,800 currently) Perquisites 1. Free furnished house NA

2. Driver’s Wages Rs. 3,00,000 p.a (Cost of fuel of Rs. 4,00,000 p.a) 3. Provident Fund/ NPS 10% of Basic Salary (Rs. 2,60,000 p.a) 4. Pension Not eligible 5. Gratuity As per Rule/ Act 6. a) Official Travel i. Highest class in train and business class by air for c) Boarding & Lodging expenses both domestic and foreign travel. ii. Actual expenses incurred, supported by bills 7. Medical Benefits Reimbursement for medical expenses including hospitalization, in full for self & dependents 8. Personal Accident Insurance Coverage of Rs. 50,00,000 9. Telephone & Mobile & Ipad Actuals of cost and call charges (Approx. Rs. 50,000) 10. Leave Fare Concession Rs. 4,00,000 in lieu of LFC, whether availed or not 11. Leave Encashment 30 days of privilege leave can be encashed once in a year. If 30 days is enchased, eligible amount will be one month’s basic salary plus personal fixed pay. 12. Casual Leave 12 days in a calendar year 13. Privilege Leave 30 days for 11 months, can be accumulated up to 90 days

Ms. Shalini Warrier who was appointed as an Additional Director of the Bank w.e.f. January 15, 2020 pursuant to the provisions of Section 161 and other applicable provisions of the Companies Act, 2013 (the ‘Act’), holds office up to the date of this Annual General Meeting (AGM) of the Bank or the last date on which the AGM should have been held, whichever is earlier and is eligible for appointment. In terms of Section 160 of the Act, the Bank has received a notice in writing from a Member signifying his intention to propose the candidature of Ms. Shalini Warrier for the office of Director. Ms. Shalini Warrier has furnished consent/ declarations for her appointment as required under the Act and the Rules thereunder.

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The Nomination Remuneration, Ethics and Compensation Committee had assessed the profile of Ms. Shalini Warrier and having found her to be ‘fit and proper’ in terms of Reserve Bank of India’s Circular on ‘Fit and proper’ criteria for directors of banks, recommended her appointment to the Board of Directors. In terms of Sections 152, 160 and other applicable provisions of the Act, the Board of Directors of the Bank, basis the recommendation of the Nomination Remuneration, Ethics and Compensation Committee, have reviewed the profile of Ms. Shalini Warrier and is of opinion that she meets the fit and proper criteria and is a person of integrity, and has the necessary knowledge, experience and expertise for being appointed as an Executive Director. Considering her vast expertise and knowledge in the field of Banking and Information Technology, it would be in the interest of the Bank that Ms. Shalini Warrier is appointed as an Executive Director on the Board of the Bank.

Ms. Shalini Warrier’s appointment is in compliance with the provisions of Section 10A of the Banking Regulation Act, 1949, in particular, on account of Ms. Shalini Warrier having the requisite experience/expertise required under Section 10A(2) of the Banking Regulation Act, 1949.

Additional information in respect of Ms. Shalini Warrier, pursuant to Regulation 36 the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and the Secretarial Standard on General Meetings (SS-2), is given at Annexure A to this Notice. Brief profile of Ms. Shalini Warrier is given at Annexure B to this Notice.

The Board of Directors recommends the resolution in relation to the appointment of Ms. Shalini Warrier as Executive Director of the Bank as set out in Item No. 10 for approval of the Members by way of an Ordinary Resolution.

Except Ms. Shalini Warrier or her relatives, none of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 10.

Item no. 11

The Bank has been borrowing funds to meet the business requirements within the limits approved by the shareholders by way of issuance of debt securities (bonds) as permitted by Reserve Bank of India (“RBI”) and in accordance with the provisions of Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008, as amended, and other applicable laws, from time to time.

In terms of Section 42 of the Companies Act, 2013 read with Companies (Prospectus and Allotment of Securities) Rules, 2014, a Company can make private placement of securities subject to the condition that the proposed offer of securities or invitation to subscribe securities has been previously approved by the Members of the Company, by a special resolution, for each of the offers or invitations/subscriptions. In case of offer or invitation for subscription of non-convertible debentures, it shall be sufficient if the Board passes a special resolution only once in a year for all the offers or invitation for subscription of such debentures during the year.

Accordingly, the Bank had obtained the approval of Members at the last AGM held on July 25, 2019 for borrowing/raising funds by issue of debt securities pursuant to the relevant provisions of the applicable circulars or guidelines issued by RBI, upto Rs. 8,000 Crore (Rupees Eight Thousand Crore Only), in one or more tranches. Pursuant to the said approval, the Bank has raised an amount of

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Rs. 300 Crore (Rupees Three Hundred Crore Only) by way of issue of Bonds during the approval period. The current approval of Members is valid till July 24, 2020.

In order to facilitate the raising of funds by way of issue of debt securities, it would be necessary to have the fresh approval of Members in place. Subject to such approval, the Board of the Bank can offer or invite for non-convertible debentures, where the proposed amount to be raised through such offer or invitation does not exceed the limit as specified in the Act. Accordingly, the Board of Directors in its meeting dated 19.06.2020, after assessing its fund requirements, has proposed to obtain the consent of the Members of the Bank for borrowing/raising funds by issue of debt securities including but not limited to Additional Tier I bonds (AT1 bonds), Tier II bonds, Long Term Bonds (Infrastructure & Affordable Housing), Masala Bonds, Green bonds, Non-Convertible Debentures etc., pursuant to the relevant provisions of the applicable circulars or guidelines issued by RBI, upto Rs.8000 Crore (Rupees Eight Thousand Crore only), in one or more tranches and under one or more shelf disclosure documents and/or one or more letters of offer, in domestic market and/or overseas market, as per the structure and within the limits permitted by RBI and other regulatory authorities, to eligible investors on private placement basis, on such terms and conditions including the price, coupon, premium / discount, tenor etc., as the Board of Directors or any Committee(s) thereof or such other persons as may be authorized by the Board, from time to time, determine and consider proper and appropriate for the Bank. This would form part of the overall borrowing limits as may be approved by the Members under Section 180(1) of the Companies Act, 2013.

The pricing of the NCDs / Additional Tier I bonds (AT1 bonds), Tier II bonds/ Long Term Bonds (Infrastructure & Affordable Housing)/ Masala Bonds/ Green bonds etc. would be in accordance with the applicable statutory guidelines, for cash, either at par or premium or at a discount to face value depending upon the prevailing market conditions.

The Board of Directors recommends the resolution in relation to Raising of Funds through Issuance of Bonds as set out in item No. 11 for approval of the Members by way of a Special Resolution.

None of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 11.

Item no.12

The Authorised share capital of the Bank, at present, is Rs. 500 Crore consisting of 250,00,00,000 equity shares of Rs.2/- each. At present, the paid-up equity share capital of the Bank is Rs. 3,98,67,19,444/-. It is necessary to increase the quantum of authorized share capital to facilitate raising of capital through issuance of securities as proposed in item No. 13 and therefore the authorised share capital of the Bank needs to be increased to accommodate the issuance of securities.

In view thereof, it is proposed to increase the authorized share capital of the Bank to Rs. 800,00,00,000 (Rupees Eight Hundred Crore only) comprising 400,00,00,000 equity shares of face value of Rs. 2/- each. The proposed increase in the authorized share capital of the Bank requires the approval of the Members in the General Meeting. The alteration in the Memorandum of Association of the Bank is only consequential change to reflect the proposed increase in the authorized share capital.

In terms of Section 49C of the Banking Regulation Act, 1949, the approval from RBI is being undertaken for the proposed amendment in the Memorandum of Association of the Bank relating to increase in authorized share capital up to Rs. 800 Crore.

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The Board of Directors recommends the resolutions as set out at Item No 12 of this notice, for approval of the Members by way of an Ordinary Resolution.

None of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 12.

Item no. 13

To maintain strong capital adequacy and ensure unhindered growth despite the challenging macroeconomic scenario, Bank proposes to raise additional capital aggregating up to Rs 4000/- Crores (Four Thousand Crores only) or its equivalent amount in such foreign currencies as may be necessary, inclusive of any premium, by way of placement of Securities or a combination thereof to Qualified Institutional Buyers through Qualified Institutions Placement (QIP) and/ or private placement in international markets through ADRs/ GDRs or foreign currency convertible bonds or issue of fully convertible debentures/partly convertible debentures, and/or any other financial instruments or securities convertible into Equity Shares with or without detachable warrants with a right exercisable by the warrant holders to convert or subscribe to the Equity Shares or otherwise, in registered or bearer form, whether rupee denominated or denominated in foreign currency or a Further Public Offer ("FPO") or rights issue or any other methods. The issue of securities may be consummated in one or more tranches at such time or times at such price, at a discount or premium to market price or prices in such manner and on such terms and conditions as the Board may in its absolute discretion decide, taking into consideration prevailing market conditions and other relevant factors and wherever necessary in consultation with advisors, lead managers, underwriters and such other authority or authorities as may be necessary and subject, to, as applicable, the ICDR Regulations, the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993, the Depository Receipts Scheme, 2014, and other applicable guidelines, notifications, rules and regulations, each as amended.

The Board may in their discretion adopt any one or more of the mechanisms prescribed above to meet its objectives as stated in the aforesaid paragraphs without the need for fresh approval from the members of the Bank.

Basis or Justification of Price: The pricing of the Securities that may be issued to qualified institutional buyers pursuant to a qualified institutions placement shall be freely determined subject to such price not being less than the price calculated in accordance with Chapter VIII of the ICDR Regulations. The Bank may, in accordance with applicable law, offer a discount of not more than 5% or such percentage as permitted under applicable law on the floor price determined pursuant to the ICDR Regulations or such other discount as may be permitted under applicable law. The “Relevant Date” for this purpose in case of allotment of Equity Shares, will be the date when the Board or the Committee of the Board decides to open the qualified institutions placement for subscription or, in case of convertible securities, the date of the meeting in which the Board or Committee of Directors duly authorized by the Board decides to open the proposed issue.

The Equity Shares allotted would be listed on one or more stock exchanges in India and in case of ADR/GDR, internationally. The offer/ issue / allotment would be subject to the availability of the regulatory approvals, if any. The conversion of Securities held by foreign investors into Equity Shares would be subject to the applicable foreign investment cap and relevant foreign exchange regulations. As and when the Board does take a decision on matters on which it has the discretion, necessary disclosures will be made to the stock exchanges as may be required under the provisions of the SEBI

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(Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (the “Listing Regulations”).

Section 62(1) (a) of the Companies Act, 2013 provides, inter alia, that when it is proposed to increase the issued capital of a company by allotment of further Equity Shares, such further Equity Shares shall be offered to the existing members of such company in the manner laid down therein unless the members by way of a special resolution in a General Meeting decide otherwise. Since, the Special Resolution proposed in the business of the Notice of Annual General Meeting may result in the issue of Equity Shares of the Bank to persons other than existing members of the Bank, consent of the members, by way of a special resolution, is being sought pursuant to the provisions of Section 62(1)(c) and other applicable provisions of the Companies Act, 2013 as well as applicable rules notified by the Ministry of Corporate Affairs and in terms of the provisions of the Listing Regulations.

This Special Resolution, if passed, will have the effect of allowing the Board to offer, issue and allot Securities or a combination thereof to the investors who may or may not be the existing members of the Bank.

The Board of Directors recommends the resolution as set out in item No. 13 for approval of the Members by way of a Special Resolution.

The Directors, Key Managerial Personnel of the Bank and their respective relatives may be deemed to be concerned or interested in the passing of resolution to the extent of securities issued / allotted to them or to the companies in which they are director or member. Save as aforesaid, none of the Directors, Key Managerial Personnel or their respective relatives are, in any way, concerned or interested, financially or otherwise, in this resolution set out at Item No. 13.

Item No. 14

The Board of the Bank had in its meeting dated June 19, 2020, approved the amendments to be made to the Memorandum of Association of the Bank for adding express provisions permitting the Bank to make investments in various corporate structures such as Partnerships, Joint Ventures, Associates, Limited Liability Partnerships etc., as well as to make investments in Insurance Companies and to undertake operations in derivatives markets. Under the existing MOA, Bank was permitted to engage in such activities permissible for a Banking Company to undertake. However, the amendments seek to explicitly mention these activities and thus increase transparency.

Therefore, the existing sub - Clause “c” of Clause “3 (A)” “OBJECTS OF THE COMPANY TO BE PURSUED BY THE BANK IMMEDIATELY ON ITS INCORPORATION” and existing sub - Clause “r” of Clause “3 (B)” “OBJECTS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE 3.A ARE” are proposed to be amended to cover the aforesaid requirements.

Further, a new sub - clause 'u' will be added after the existing sub-clause “t” under Clause 3 (B) “OBJECTS WHICH ARE NECESSARY FOR FURTHERANCE OF THE OBJECTS SPECIFIED IN CLAUSE 3.A ARE” to specifically include the services rendered by the Bank as a counterparty in the derivatives market.

The Board of Directors recommends the resolutions as set out at Item No 14 of this notice in relation to alteration of Object Clauses of Memorandum of Association of the Bank for approval of the Members by way of a Special Resolution.

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None of the Directors and Key Managerial Personnel of the Bank and their relatives are concerned or interested, financially or otherwise, in the resolution set out at Item No. 14.

By Order of the Board of Directors

Sd/-

Samir P Rajdev Company Secretary Membership No. A17849

Aluva, June 19, 2020

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Annexure A

Details of Directors seeking appointment/re-appointment at the 89th Annual General Meeting to be held on July 16, 2020

[Pursuant to Regulation 36(3) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Secretarial Standard on General Meetings (SS-2)] Name of the Mr. Shyam Ms. Grace Koshie Mr. Sudarshan Mr. Ashutosh Ms. Shalini Warrier Director Srinivasan Sen Khajuria Date of Birth & 02.02.1962 14.12.1952 21.01.1959 13.07.1960 07.06.1966 Age 58 years 67 years 61 years 59 years 54 years DIN & 02274773 06765216 03570051 05154975 08257526 Nationality Indian Indian Indian Indian Indian Date of first 23.09.2010 22.11.2013 11.02.2020 28.01.2016 15.01.2020 appointment to the Board Qualification(s) B.E, PGDM (IIM M.A (Economics) MBA, MSc Graduate in Science B.com, CA Kolkata) and PG Diploma in and Law, Higher Education, Post Graduate in CAIIB Economics Experience in He started his career She served in He has varied He has been working She has over 28 specific with Lucas-Tvs in various capacities in experience of as President – years of banking functional 1984 and joined various over 36 years Treasury in our Bank experience. Prior to areas Wipro InfoTech Ltd functional/regulatory working in the since 2011. He has joining Federal Bank, as Regional Sales areas of RBI since RBI in the over thirty years of she worked with Manager in 1988. 1976. Ms. Koshie areas of banking experience, Before coming to carries with her rich Banking, having worked in SBI, Bank, a leading Federal bank he and varied Finance and IDBI Bank Ltd., and multinational Bank. worked with experience of over Risk had handled forex There multiple Standard Chartered 36 years of central Management. business, disciplines were Bank responsible for banking in the He has rich international banking, handled by her, the strategy, Reserve Bank of experience as a corporate credit etc. across various development and India. Was in charge central banker there at. He is an geographies that management of the of Foreign Exchange and in the field expert in treasury included India, Bank`s Consumer Department in RBI of bank operations and has Brunei, Indonesia, Banking Business. Central Office from supervision and featured regularly in Singapore and United He was with 2001-2004. Served regulation. He various television Arab Emirates. Standard Chartered as Secretary to the holds an MBA channel discussions She brings first-hand Bank`s Consumer Central Board of RBI in International and is also a regular global experience in franchise, Citibank, for the period 2004- Banking and invitee as panelist on Branch Banking, in areas of Risk, 2012. Ms. Koshie Finance from various topics in Process Credit & Treasury had served as RBI the University Industry level Management, Service Operations, Sales nominee Director on of Birmingham, conferences. Quality and Client and Customer the Boards of Dena UK. Mr. He is also a Director Experience, Project Service from 1990- Bank and Sudarshan Sen in Fedbank Financial Management, 2001. He is also a . also served the Services Ltd. Operations, Director in Fedbank Presently, she is a post of Technology, and Financial Services Director of the Board Executive Compliance with Ltd, IDBI Federal of First source Director of RBI special emphasis on Life Insurance Co. Solutions Ltd and in the year Client Due Diligence Ltd, Indian Institute CESC Ventures Ltd. 2016. He is and Anti Money of Banking and also on the Laundering. She is Finance. Board of also a director on the Cashpor Micro Board of Federal Credit Limited. Operations and Services Limited and IDBI Federal Life Insurance Company Limited. Relationship Not related to any Not related to any Not related to Not related to any Not related to any with any Director or Key Director or Key any Director or Director or Key Director or Key Director(s) or Managerial Managerial Key Managerial Managerial Personnel Managerial Personnel Manager or Personnel of the Personnel of the Personnel of of the Bank and their of the Bank and their

Page 32 of 36

Key Bank and their Bank and their the Bank and relatives. relatives. Managerial relatives. relatives. their relatives. Personnel of the Company Directorship Nil Firstsource Solutions Nil Nil Nil held in other Ltd listed CESC Ventures Ltd Companies Memberships NA Firstsource Solutions NA NA NA in the Ltd Committees of Audit Committee – Board of other Chairman listed CESC Ventures Ltd Companies* Audit Committee – Member Membership Chairman Member Member Member Member and 1. Special Chairmanship 1. Audit Committee 1. Investment 1. Credit Committee 1. Audit Committee Committee of the in the 2. Nomination, & Raising 2. Investment & 2. Customer Board for Committees of Remuneration, Capital Raising Capital Service, monitoring and the Board of Ethics & Committee Committee Marketing follow up of cases the Company Compensation 2. Risk 3. Risk Strategy and of Frauds (SCBF) Committee Manageme Management Digital Banking 2. Review 3. Customer nt Committee Committee Committee of the Service, Committee 4. Investor 3. Special Board on Non- Marketing 3. Review Grievance, Share Committee of the Cooperative Strategy and Committee Transfer & Board for Borrowers Digital Banking of the Stakeholder monitoring and 3. Review Committee Board on Relationship follow up of Committee of the 4. Special Non- Committee cases of Frauds Board for Willful Committee of Cooperativ 5. Special 4. Information Defaulters the Board for e Committee of the Technology &

Member monitoring and Borrowers Board for Operations follow up of 4. Review monitoring and Committee 1. Credit cases of Frauds Committee follow up of cases 5. Corporate Social Committee of the of Frauds Responsibility 2 Investment & Board for 6. Corporate Social Committee Raising Capital Willful Responsibility Committee Defaulters Committee 3 Risk Management Committee 4 Investor Grievance, Share Transfer & Stakeholder Relationship Committee 5 Customer Service, Marketing Strategy and Digital Banking Committee 6 Information Technology & Operations Committee 7 Committee for Human Resource Policy 8 Corporate Social Responsibility Committee

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Number of 7,98,595 equity Nil Nil 2,52,000 equity Nil equity shares shares shares held in the Company as on 31.03.2020 Number of 14 14 3** 13 4** meetings of the Board attended during the Financial Year 19-20 Terms and He was re-appointed The Board of He was The Board of The Board of conditions of as Managing Directors at its appointed by Directors in its Directors in its re- Director and CEO of meeting held on the Board vide meeting dated meeting dated appointment the Bank for one June 09, 2020 Circular October 16, 2019 re- October 16, 2019 along with year effective from approved the Resolution appointed recommended the details of 23.09.2019 for which proposal for passed on Mr. Ashutosh appointment of remuneration RBI has granted appointment, as a February 11, Khajuria as Executive Ms. Shalini Warrier, sought to be approval vide letter Non-Executive Non 2020, as an Director from Chief Operating paid DBR. Appt. No.2280/ Independent Director Additional 28.01.2020 to Officer as Executive 08.38.001/2019-20 of the Bank with Independent 31.03.2021 for which Director for which RBI dated 21.09.2019, effect from July 17, Director of the RBI has granted has granted approval subject to the 2020 to November Bank for five approval vide letter vide letter DoR. Appt. approval of 21, 2021 subject to years effective DoR. Appt. No. No. shareholders of the approval of Members from February 5116/08.38.001/2019- 5658/08.38.001/2019- Bank of the Bank. 11, 2020. 20. 20 for appointment w.e.f 15.01.2020. Further, as per the Remuneration/Terms The Board in its Remuneration/Terms terms of and Conditions for meeting held on and Conditions as Remuneration/Terms appointment, he is serving as part time June 19, 2020, approved by RBI and Conditions as liable to retire by Chairman of the recommends made effective from approved by RBI rotation as per the Bank, as approved for the approval 28.01.2020 is shown made effective from provisions of Section by RBI made of the Members in explanatory 15.01.2020 is shown 152 of the effective from for his statement of item no. in explanatory Companies Act, November 07, 2019 appointment as 9. statement of item no. 2013 and being is shown in Independent 10. eligible offers himself explanatory Director for a for re-appointment. statement of item no. period of five 6. years with Remuneration/Terms effect from the and Conditions as Apart from aforesaid date of his approved by RBI remuneration she is appointment by made effective from entitled to receive the Board. 23.09.2019 is shown sitting fees. in explanatory He is entitled to statement of item no. receive sitting 5. fees. Details of last During the Financial During the Financial During the During the Financial During the Financial drawn Year 2019-20, an Year 2019-20, an Financial Year Year 2019-20, an Year 2019-20, an remuneration aggregate amount of aggregate amount of 2019-20, an aggregate amount of aggregate amount of Rs.227 Lakhs was Rs. 38.20 Lakhs was aggregate Rs. 120 Lakhs was Rs. 106 Lakhs was paid towards paid towards amount of Rs. paid towards paid towards remuneration. honorarium, 2.40 Lakhs was remuneration. remuneration. commission and fee paid towards for attending Board/ fee for Committee attending Board Meetings. meetings.

*Chairmanship and membership of the Audit Committee and the Stakeholders’ Relationship Committee are only considered. **Mr. Sudarshan Sen was appointed on the Board of the Bank w.e.f February 11, 2020 and Ms. Shalini Warrier was appointed on the Board of the Bank w.e.f January 15, 2020.

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Annexure-B

Brief profile of Directors seeking appointment/re-appointment at the 89th Annual General Meeting to be held on July 16, 2020

Mr. Shyam Srinivasan took charge as the Managing Director & Chief Executive Officer of The Federal Bank Ltd on September 23, 2010. He joined Federal Bank, equipped with the experience of over 20 years with leading multinational banks in India, Middle East and South East Asia, where he gained significant expertise in retail lending, wealth management and SME banking. He is an alumnus of the Indian Institute of Management, Kolkata and Regional Engineering College, Tiruchirapally. He has completed a Leadership Development Program from the London Business School and has served on the Global Executive Forum (the top 100 executives) of Standard Chartered Bank from 2004 to 2010. At Federal Bank, he has been instrumental in implementing various path-breaking initiatives which include: Increasing the presence and visibility of the Bank to a national level; creating an inherent capability within the Bank to reinvent and re-implement processes - especially the customer-critical ones, initiating the Total Quality Management Journey of the Bank, focusing on under-writing quality at every stage right from credit selection, incubating the human resource potential of the Bank and so on. He continues his mission to create a culture of Ethics and Excellence in the Bank, which he so believes in. An administrator of national eminence, he holds key positions in the Industry as follows:  Chairman of IBA Committee on Member Private Sector Banks.  Member of the committee on Financial Sector Legislative Reforms set up by Reserve Bank of India.  Past Chairman of Kerala State Council of Confederation of Indian Industries.  Honorary fellow & governing council member of Indian Institute of Banking and Finance  Chairman of Policyholder Protection Committee of IDBI Federal  Alternate Chairman in the following committees of the Indian Bank's Association:  Committee on Risk Management and Basel Implementation  Agro Business and MSME He has been conferred upon the following awards and recognitions in the recent past:  Exemplary Leadership Award from the Rotary Club  Rashtriya Udyog Ratna Award instituted by the NEHRDO  The Greatest Corporate Leaders Of India Award given away by the World HRD Congress

Ms. Grace Koshie a postgraduate in Economics with specialization in the area of Econometrics and Monetary Economics from Bombay University joined Reserve Bank of India in the year 1976 as a Direct Recruit in Grade B. She also holds a PG Diploma in Higher Education and is a Certified Associate of Indian Institute of Bankers. Before joining Reserve Bank, she had worked as a lecturer in Sophia College, Mumbai. As Secretary to the Central Board of the Reserve Bank of India she was responsible for central bank governance and related compliance matters, matters connected to the Meetings of the Central Board and its Committee, and other senior management meetings. Ms. Koshie carries with her rich and varied experience of over 36 years of central banking in the Reserve Bank of India. Ms. Koshie also held the charge of the Foreign Exchange Department in RBI Central Office from 2001-2004 Ms. Koshie had earlier served as RBI nominee Director on the Boards of and Corporation Bank.

Mr. Sudarshan Sen has varied experience of over 36 years working in the RBI in the areas of Banking, Finance and Risk Management. He has rich experience as a central banker and in the field of bank supervision and regulation. He holds an MBA in International Banking and Finance from the University of Birmingham, UK. Mr. Sudarshan Sen was elevated to the post of Executive Director of RBI in the year 2016.

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Mr. Ashutosh Khajuria is the Executive Director and Chief Financial Officer of The Federal Bank Limited. He oversees the functions of Treasury, Corporate Planning, Inspection & Audit, Legal and the IFSC Banking Unit (IBU) in GIFT City, Gujarat. He is a Graduate in Science from the prestigious Banaras Hindu University and is a Bachelor in Law as well. Completed Post Graduation in Economics too. Joined Federal Bank in 2011 as President and Head-Treasury and was later entrusted with the additional responsibility of business development in the entire network of branches/offices outside Kerala.

He brings with him very rich and varied exposure spanning over thirty four years, having worked in State Bank of India covering the entire gamut of banking functions including Treasury, International Banking, Trade Finance, Corporate Banking and Branch Banking. Prior to joining Federal Bank, he was CGM and Head-Treasury in IDBI Bank. Presently, he is also a Director in IDBI Federal Life Insurance Company Limited, a Life Insurance company in which Federal Bank holds 26% stake. He has a very keen eye on the financial markets and features regularly in panel discussions in FEDAI/FIMMDA conferences and also on various television channels.

Ms. Shalini Warrier was appointed as Executive Director of The Federal Bank Limited with effect from January 15, 2020. She joined the Bank on November 02, 2015 as the Chief Operating Officer, with her primary responsibility being operational excellence, coupled with digital innovation. In May 2019, she took on the additional responsibility of Business Head of Retail Banking Products.

Ms. Shalini Warrier is a member of the Institute of Chartered Accountants of India and stood first at the all India level in 1989. She is also a Certified Associate of Indian Institute of Bankers.

Ms. Warrier has over 28 years of banking experience. Prior to joining Federal Bank, she worked with Standard Chartered Bank, a leading multinational Bank. She handled multiple disciplines there, across various geographies that included India, Brunei, Indonesia, Singapore and United Arab Emirates. She brings first-hand global experience in Branch Banking, Process Management, Service Quality and Client Experience, Project Management, Operations, Technology, and Compliance with special emphasis on Client Due Diligence and Anti Money Laundering.

In her current role, she leads the Banks's initiatives designed to enhance customer experience and operational excellence through automation and digitalization. She is responsible for formulating the Bank's future direction and partner with the Board and the Top Management team to drive strategic initiatives designed to enhance shareholder value, ensuring all the relevant support functions run smoothly and are able to create the right systems to support business growth of the Bank, confirming right support architecture is implemented in the Bank and through which the Bank is able to grow and prosper. She is also responsible for delivering innovative retail products to the existing and prospective customers of the Bank.

She is a well-known banking personality and has represented the Bank at various fintech and technology platforms in India and abroad.

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Annual Report 2019-20

1 Safe Harbour

This document contains certain forward-looking statements based on current expectations of The Federal Bank Limited management. Actual results may vary significantly from the forward–looking statements contained in this document due to various risks and political conditions in India and outside India, volatility in interest rates and in the securities market, new regulations and Government policies that may impact the businesses for The Federal Bank Limited as well as its ability to implement the strategy. The Federal Bank Limited does not undertake to update these statements. This document does not constitute an offer or recommendation to buy or sell any securities of The Federal Bank Limited or any of its subsidiaries and associate companies. This document also does not constitute an offer or recommendation to buy or sell any financial products offered by The Federal Bank Limited. Figures for the previous year have been regrouped wherever necessary to conform to current year’s presentation.

CONTENT

04 About the Bank

05 Performance Dashboard

08 Message from Chairperson

10 Message from MD & CEO

12 Board of Directors & Management Team

15 Directors' Report

50 Management Discussion and Analysis

82 Corporate Governance Report

113 Business Responsibility Report

122 Financial Statement of Federal Bank

195 Basel III Disclosures

221 Consolidated Financial Statement

272 Form AOC - I

274 Glimpses of Events

2 3 About the Bank

The history of Federal Bank dates back to the pre-independence era. The Bank was incorporated on April 23, 1931 as the Travancore Federal Bank Limited, Nedumpuram under the Travancore Companies Regulation, 1916. Late K.P. Hormis, the visionary banker and founder took up the reigns in 1945 and built the Bank a nationwide institution. The Bank’s name was changed to The Federal Bank Limited on December 02,1949. The Bank was licensed under the Banking Regulation Act, 1949, on July 11, 1959 and became a scheduled commercial bank under the Second Schedule of Reserve Bank of India Act, 1934 on July 20, 1970. Today, the Bank is present in 24 States, Delhi NCT and 4 Union Territories and the Bank is listed in BSE Limited, National Stock Exchange of India Limited and London Stock Exchange.

Our Vision To be the ‘Most Admired Bank' which is Digitally enabled with a sharp focus on Micro, Medium and Middle market enterprises.

Our Mission Devote balanced attention to the interests and expectations of stakeholders, and in particular:

Customers: Meet and even exceed expectations of target customers by delivering appropriate products and services, employing as far as feasible, single window and 24-hour-seven-day-week concepts, leveraging a strengthened branch infrastructure, ATMs, other alternative distribution channels, cross-selling a range of products and services to meet customer needs varying over time, and ensuring the highest standards of service at all time, guided by our principle of being 'Digital at the fore, human at the core'.

Shareholders: To achieve consistent growth in shareholder value.

Employees: Develop in every employee a high degree of pride and loyalty in serving the Bank.

1,263 1,937 12,496 Branches ATMs/Cash Member Team (March 31, Recyclers (March 31, 2020) (March 31, 2020) 2020)

4 PERFORMANCE DASHBOARD

VOLUME GROWTH

Retail Advances Home Loans grew Agri Advances grew grew from ` 31727 from ` 15394 Cr from ` 11444 Cr Cr to ` 37878 Cr to ` 18229 Cr to ` 12874 Cr (up by 19%) (up by 18%) (up by 12%)

Business Banking Gold Loan grew NR deposits grew Core deposits grew Advances grew from from ` 7228 Cr from ` 53159 Cr from ` 131768 Cr `9564 Cr to `10610 Cr to ` 9301 Cr to ` 60686 Cr to ` 148919 Cr (up by 11%) (up by 29%) (up by 14%) (up by 13%)

INCOME GROWTH

Total Income grew Net Interest Income Fee Income grew Interest earned grew from ` 12770 Cr grew from ` 4176 Cr from ` 1037 Cr from ` 11419 Cr to ` 15142 Cr to ` 4649 Cr to ` 1229 Cr to ` 13211 Cr (up by 19%) (up by 11%) (up by 19%) (up by 16%)

KEY RATIOS

Earnings CRAR Per Share : BASEL III : ` 7.76 14.35%

Return on Return on Provision Net NPA%: Equity: Assets: Coverage Ratio: 1.31% 11.10% 0.94% 72.48%

5 Performance Dashboard

Footprint Coverage Business

Number of Branches Number of ATMs/ Cash Recyclers Deposits Deposit Market Share Advances Advance Market Share

1.18%

1.13% 1.06% 1.09% 1938 0.94% 1915 1937 0.77% 1.03% 1829 0.95% 0.90% 1252 1252 1252 1251 1263 1516 0.82% 79172 58090 97665 73336 111992 91957 134954 110223 152290 122268 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20 FY 16 FY 17 FY 18 FY 19 FY 20

NR Deposit Deposit Mix

FY 16 FY 17 FY 18 High Value Resident TD NRI TD CASA FY 19 FY 20

60686

53159 46450 45072 43388

38578 37252 31838 42814 32597 25705 37326 26522 30892 22328

36269 38059 50848 30156 45235

983 3036 5790 9005 12178 FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 FY20

6 Annual Report 2019-20

Profitability Asset Quality

Gross NPA% (Federal) Gross NPA% (Industry)

11.6 Operating Profit Net profit 9.3 9.3 9.3 7.5 3205 3.07 2.84 2.84 2.33 3.00 2.92 2763

2291 FY16 FY17 FY18 FY19 H1 FY20 FY20 1925 1543 1424 1244 Net NPA% (Federal) Net NPA% (Industry) 879 831 6.1 5.3 4.4 3.8 3.7 476

1.69 1.59 1.31 1.64 1.28 1.48

FY16 FY17 FY18 FY19 FY20 FY16 FY17 FY18 FY19 H1 FY20 FY20

Presence to Prominence Prominence to Dominance Network 2* Market Share Network 1# Market Share

Deposits Advances Deposits Advances

0.8% 1.7% 12.2% 22.9%

17.4% 0.4% 0.8% 14.6% 11.7%

0.3% 0.4% 11.5%

FY16 FY20 Incremental FY16 FY20 Incremental FY16 FY20 Incremental FY16 FY20 Incremental

* Network 2: Rest of India # Network 1: Home Market-Kerala

7 We are emerging from unprecedented crisis. Across the globe MESSAGE FROM THE and in India, we are learning to work through the challenges of the New Normal of the pandemic, bringing out some of the best and most enduring values of resilience, cooperation CHAIRPERSON and creativity, even as the shop floors of corporate giants repurpose to respond to the needs of survival . Ms. Grace Elizabeth Koshie Globally, in FY 2020 apart from the havoc caused by the Covid -19 outbreak in the last quarter of the financial year, an array of geographical and political factors led to a dismal economic growth of 2.9%, the weakest since the 2008-09 crisis. The threat of an imminent recession, ongoing trade tensions between the US and China and a delayed Brexit, were among the factors that further spurred overall negative global growth outlook. In India, although the Covid crisis began to impact economic activity only from the last fortnight of Financial Year, the economy was already showing signs of a slowdown. As we all know the pandemic did not spare the financial services sector, even as the regulators moved swiftly to secure the system. However, each institution had to respond with exceptional measures to continue to provide continuity of services to customers while ensuring the health and safety of the staff and the security of its systems. In the face of unprecedented challenges, your Bank acted with a clear focus to conserve, preserve and innovate to ride out the waves of the ongoing crisis believing that we would emerge stronger at the other end. We are already beginning to see the appearance of green shoots in the economy. The ‘Atmanirbhar Bharat Abhiyan’ stimulus package is expected to be the key driver of revival and structural reforms going forward. The package, with its credit booster to MSMEs, liquidity support to NBFCs, HFCs and MFIs, focus on social and rural segment, reforms in the power sector to strengthen the economy. These measures have certainly improved the outlook for the banking industry. Despite the diverse challenges, both in India and in global markets your Bank remains resilient and has delivered a robust financial and operating performance, with significant growth across parameters. I am delighted to share some of the highlights of our performance for FY 2020. The operating rhythm of the Bank remained strong and the Bank registered its highest ever Operating Profit and Net Profit, registering a growth of 16% and 24% respectively.

8 Annual Report 2019-20

The Bank crossed another milestone with total business crossing of the Bank was strengthened with the addition of Mr. Siddhartha ` 2.5 Lakh Cr to reach ` 274558 Cr with a growth of 12%. We Sengupta (former Dy. MD of International Banking Group, SBI), continued to gain share in the Market, with the Market Share in CA Manoj Fadnis (past President of ICAI), Ms. Shalini Warrier (Chief credit improving by 5 bps to 1.18% and Market Share in deposits Operating Officer of the Bank) and Mr. Sudarshan Sen (former better by 6 bps to reach 1.09%, as on end of FY 2020. Total income Executive Director- RBI). grew by 18.58% from ` 12770.05 Cr to ` 15142.16 Cr. The Bank I take this opportunity to place on record the valuable contribution also registered impressive results on other key parameters such as of Mr. Dilip Sadarangani, the former Chairman and Independent Net Interest Income, EPS, including qualitative metrics. The Bank Director, for his immense contribution to governance and the continues to be well-capitalized with a comfortable CRAR position of overall growth of the Bank, as also for his foresight and wisdom. 14.35% as on 31 March 2020. He laid down the Chairmanship of the Bank on attaining the age These encouraging numbers reflecting all-round balanced growth of retirement. I also take this opportunity to place on record the are the outcome of deliberate strategic efforts of a highly committed valuable contribution of Mr. Nilesh Vikamsey, the past Chairman and Federal Team who pursued the path of excellence, notwithstanding Independent Director, for his astute interventions in the functioning challenges. Over the last decade, the Bank, under the seasoned of the Board and Committees and overall contribution to the growth and astute CEO, Mr. Shyam Srinivasan, leading a well-blended of the Bank. We take this opportunity to wish both many happy and team of both experience and energetic talent, is being increasingly fulfilling years ahead. repositioned as a prominent national banking player with innovation The collective experience and wisdom of my colleagues on the Board as key driver. will, I am sure stand the Bank in good stead in our journey ahead FIRST CHOICE through these unpredictable and unprecedented times. The structural soundness of the franchise along with its strong digital orientation As your Bank climbs the value chain, our benchmarks are reset under are key in making the Bank, future ready. This edge will keep Federal and a new leitmotif: FIRST CHOICE - the theme of the cover page Bank a reliable FIRST CHOICE for its customers, an exciting workplace of the Annual Report this year. FIRST CHOICE is our clarion call to for its employees, and a partner in progress for society at large, while ramp up performance and make Federal Bank the ‘go-to’ brand for delivering significant returns to the shareholders. I am confident that everyone. It is an exhortation to up the game at all levels and become in spite of the pandemic led bleak outlook the Bank will not settle the most dependable ally for all our stakeholders with best-in-class for less, but rise to be the FIRST CHOICE of its stakeholders. This products, superior customer care, unceasing innovation and creation includes our hurting communities across the country and the Bank of enduring value. I am sure that the mantra of FIRST CHOICE will continues to make tangible and lasting impact across a number of resonate far and wide and will galvanize Federals to give their very areas through a variety of CSR initiatives reflecting its strong values best. as a Corporate Citizen. As the Bank takes strides to be the bank of FIRST CHOICE in the In closing, on behalf of my colleagues on the Board of Directors of country, the foundation to the quality of growth lies in the strong the Bank, I would like to thank each member of the Federal Team for governance culture that we have carefully built up over the years. their hard work and commitment that has helped us to be the Bank The Board of Directors stands together in implementing the we are today. Thank you to our valued customers and shareholders highest standards of Corporate Governance supported by well- for the continuing faith in your Bank. We look forward to continuing established accountability processes for self-assessment and ongoing this journey with you to take the Bank to greater heights. improvements. The Corporate Governance practices of the Bank with a track record of ethical conduct and transparent practices will, I am sure offer the much needed reassurance to stakeholders in these With best wishes, turbulent times. Grace Elizabeth Koshie The members of the Board of your Bank represent some of best of expertise in their respective fields. In the last Financial Year, the Board

9 Dear Shareholders, I am pleased to share our Annual Report for the Financial Year 2020. Let me begin by thanking all of you for the confidence bestowed on us, MESSAGE FROM THE which has helped us to deliver a strong Financial Year despite a challenging environment. You may recall, in my message in the Annual Report of 2016, I referred to the MANAGING Perfect Storm that challenged businesses and how (then) we beat the odds and emerged stronger. But, now that Perfect Storm seems to have gathered further strength and turned into a Tsunami Plus, with undimensioned and DIRECTOR & CEO profound impact over our lives and businesses. The global catastrophe caused due to the outbreak of Covid-19 has changed our collective calculus Mr. Shyam Srinivasan of uncertainty and has left Nations, Economies and Industries, grappling to shift to a new World Order! Closer home, in India, the pandemic has led to an intertwined quandary with the overlap of an economic setback over a health crisis. Unfortunately this pandemic has occurred in the midst of the nation’s pursuit of becoming a US$ 5 trillion economy. Nevertheless, while we are still fighting the microbe, the turmoil has encouraged our Government to change its economic vision around ‘Self- Reliance’, through a smorgasbord of controls and reforms. Not surprisingly, the last fiscal was an extremely challenging period for Banks in India. Though Covid-19 appeared around the fag end of the FY, the industry faced several other materially impactful events, be it the announcement of PSB mergers, the unpleasant crisis around NBFCs, the fall and resurrection of a Private Bank or some of the concerns around governance practices in certain institutions. During these volatile times, your Bank worked hard, to be an Island of Calm, relatively insulated from the odds and delivering a strong financial performance. The resilience and strength built on the back of strong fundamentals, contributed to the robust operating momentum across many of the key metrices. Last year, I spoke to you about our journey from ’Presence to Prominence’ in chosen geographies and ‘Prominence to Dominance’ in our home market. We have seen consistent gains and recorded a healthy increase in Market Share across key geographies and segments (Refer chart on page 7) and our visibility among the top quartile Banks, both in terms of business and governance has amplified in the last Financial Year. You may have noted that our efforts were recognized with us receiving international mention by Forbes, a leading business publication, who listed us among the Top 200 companies in the Asia Pacific with a topline of above a billion dollars. We owe this recognition to our ever-expanding customer base which is the bedrock of support for all our endeavors. With share gain in both Market Share and Mind Share, we are now Bankers to over 1 Crore Indians! The testimony to having a granular customer base is our strong Liability Franchise, with Retail Deposits constituting over 90 per cent of the Total Deposits. Several client engagement initiatives and the enhanced digital footprint were key in leveraging this inherent strength to remain well-positioned in comparison to our competition. While we continue to strengthen our fundamentals and leverage the attributes built through balanced growth efforts, we are acutely aware of the extraordinary times that calls for an extraordinary operating plan. 10 Annual Report 2019-20

As I mentioned, we will seek to remain the Island of Calm, resilient • The Bank’s role in being a socially and strong, but, looking ahead, we are building on a theme, to be responsible corporate citizen, is the FIRST CHOICE for all our stakeholders. Before I expand on our well recognized than ever before. aspiration, let me share some of the highlights from the last Financial The outbreak of Covid-19 made Year: us recast our CSR thought process • Notwithstanding an environment that had significant and we decided to up the ante in headwinds, our Bank posted highest-ever profit numbers being an active partner in support and the Operating Profit for the full year grew 16% and was of the needy through partnerships recorded at `3205 Cr for the Financial Year’20. Net Profit with Government and several other recorded for the year, was `1543 Cr, growing 24% agencies. We were y-o-y. This, in spite of a material increase in credit among the few Banks in India, who launched provisions made to strengthen the Balance Sheet. Mobile ATMs, across various parts of the country, While the NIM stood at 3.05%, the Bank clocked to ensure ease of banking at customers’ doorsteps. the highest-ever Net Interest Income, at `4649 The ‘Speak for India’ initiative of the Bank is Cr, improving by 11% Y-o-Y. now covering seven states with the addition of West Bengal and Gujarat and last year saw an • We remain well-capitalized with the Capital enthusiastic participation from over two lakh Adequacy Ratio at 14.35%, as on 31 March 2020. youngsters. It is also noteworthy that the Average Liquidity Coverage Ratio at 185%, is one of the highest Way Ahead: FIRST CHOICE among Private Sectors Banks in India. Our Bank has always been respected as a thought leader in customer- • Total Deposits grew at 13% y-o-y while the CASA Ratio stood centric approach backed by relevant innovation. While we continue at 30.50%. As with the liability business, the growth of the to be deeply rooted in our fundamentals, we realize it is time to core asset franchise was broad-based across segments and the dream BIG. We call it, FIRST CHOICE! overall advances recorded a robust annual growth of 11% for If the last decade saw us emerge from a regional player to a Bank of the full year. relevance across India, now we are determined to build ourselves to • About new business initiatives, CV/CE (Commercial Vehicles/ a Bank that’s FIRST CHOICE. It is not just being the best in customer Construction Equipments) business vertical that was launched in service and having the right set of products and processes; but being FY 2019 in two selected states has now expanded to cover the able to distinguish ourselves in everything that we are and do, be entire Southern and Western Markets and we could double the it products, processes, design, people and value creation. We are book size in comparison to previous year. Government Business mindful that being FIRST CHOICE is a tall ask. This is a pursuit of grew 54% y-o-y and the engagement with the Central and excellence and there would be no finish line until we become the various State Governments got further enhanced through a slew Most Admired Bank, Digitally Enabled and Serving the Micro, of measures, including opening of the PM-CARES account. Our Small and Medium establishments in the country! foray into Wealth Management Business, with the investment in Towards this, in FY 21, we are focused on making Banking - Simple, Equirus Wealth, showed marked progress and this arm reached Digital and Contactless! Be it our branch or online experience, we a gross AUM of over `800 Cr, as on 31st March 2020, serving have challenged ourselves to ensure that our customers get a superior over 25+ AMCs and 7 PMS fund houses. and safe user interface, that’s well-differentiated and relevant for the • Guided by the philosophy of Digital at the Fore, Human current scenario. at the Core, our Bank continued to focus on empowering Before I close, I take this opportunity to thank all our eminent Board customers with a panoply of digital products and recorded Members for giving us continued guidance, support, confidence steady growth in Digital Banking volume with 83% of the total and constructive challenges always. Their professional insights and transactions carried out digitally. We launched ‘Insta-Demat’, encouragement have guided us through all our endeavors, and I am the Do-It-Yourself Demat account opening solution, enabling sure this will take us to a higher order of performance in the coming a customer to open a Demat Account in 60 seconds! Also, in years as well. FY 2020, we launched ‘Fed-e-Studio’, the fully automated Smart Branch in Let me close by extending thanks to all our stakeholders for your Kolkata marking the beginning of a new continued support and patronage. I remain, ‘Proud to be a Federal’. format for banking touch points. With several upcoming launches including the Best Wishes improved Mobile Banking application, Shyam Srinivasan we are committed to lead on the digital frontier.

11 12 Annual Report 2019-20

13 14 Annual Report 2019-20

Directors' Report

Your Directors have pleasure in presenting the 89th Annual Report on the business and operations of the Bank, together with the audited accounts for the financial year ended March 31, 2020. Financial Results (` in Crore)

Financial Parameters for the year ended March 31, 2020 March 31, 2019 Net Interest Income 4,648.90 4,176.35 Fee and Other Income 1,931.41 1,351.02 Net Revenue 6,580.31 5,527.37 Operating Expense 3,375.61 2,764.27 Operating Profit 3,204.70 2,763.10 Net Profit 1,542.78 1,243.89 Profit brought forward 2,174.29 1,742.49 Total Profit Available for appropriation 3,717.07 2,986.38 Appropriations: Transfer to Revenue Reserves 147.46 143.93 Transfer to Statutory Reserves 385.70 310.97 Transfer to Capital Reserves 135.83 34.48 Transfer to Special Reserve 96.00 84.00 Dividend pertaining to previous year paid during the year 278.22 198.01 Tax on dividend 57.19 40.70

Balance Carried over to Balance Sheet 2,616.67 2,174.29 Financial Position (as on) Deposits 152,290.08 134,954.34 Advances 122,267.91 110,222.95 Total Business (Deposits + Advances) 274,557.99 245,177.29 Other Borrowings 10,372.43 7,781.32 Investments 35,892.68 31,824.47 Total Assets (Balance Sheet Size) 180,638.05 159,339.99 Equity Capital 398.53 397.01 Ratios Return on Total Assets (%) 0.94 0.88 Return on Equity (%) 11.10 9.81 Earnings Per Share (`) 7.76 6.28 Book value per share (`) 72.86 66.87 Operating cost to Income (%) 51.30 50.01 Capital Adequacy Ratio (%) Basel (III) 14.35 14.14 Note: Previous year figures have been regrouped / reclassified, where necessary to conform to current year’s classification Highlights of Performance helped your Bank to clock this number. Total deposits reached During the year 2019-20, your Bank has delivered robust growth `152290.08 Crores and advances (net) reached `122267.91 Crores in all the business segments.Total business of your Bank improved and on averages, deposit portfolio of your Bank grew by 17.93% to by 11.98% to reach at `274557.99 Crores as on March 31, 2020. reach `137688.94 Crores and advance portfolio grew by 16.02% to 12.85% growth in deposits and 10.93% growth in advances (net) reach `114095.06 Crores.

15 Directors' Report On the NR side, NRE deposits had a growth rate of 14.20% to reach stood at `1607.17 Crores and this as a percentage to Net Advances `57223.13 Crores and NRE Savings clocked a growth of 12.89% to is 1.31%. The Provision Coverage Ratio (including technical write- reach `15437.89 Crores. The total NR business of your Bank stood at offs) stood at 72.48%. ` 60685.78 Crores with a growth of 14.16%. Net Worth & Capital Adequacy Growth in Business The Net Worth of your Bank grew by 9.38% to `14517.61 Crores as On CASA front, Savings deposit touched `39195.44 Crores with against `13273.04 Crores in the previous year. Historically, your Bank 10.44% growth and Current deposits stood at `7254.80 Crores. has been strong on capital adequacy. CRAR of the Bank calculated Your Bank registered a healthy CASA growth of 7.06% to reach in line with Basel III norms stood at 14.35% which is considerably `46450. 24 Crores. CASA ratio of your Bank stood at 30.50%. higher than the 10.875% (Including CCB) stipulated by RBI. Of this, The investment portfolio of your Bank has reached `35892.68 Crores Tier 1 CRAR is at 13.29%. as on March 31, 2020. The average investment as on March 31, Business Overview 2020 is `32617.58 Crores. Your Bank continued its consistent performance during FY 2019-20 Profitability with the total business of the Bank increasing by 11.98% to The Operating Profit of your Bank increased by 15.98% to` 3204.70 `274557.99 Crores. Crores and Net Profit of your Bank is up by 24.03% to `1542.78 There is no change in the nature of business of the Bank for the Crores. Healthy traction in core income streams has helped your year under review. Further information on the business overview and Bank to have a good momentum in core operating performance. outlook and state of the affairs of the Bank is discussed in detail in Net Interest Income improved by 11.31% to `4648.90 Crores while the Management Discussion & Analysis Report. the Non-Interest Income rose to `1931.41 Crores, showing a rise of Employee Productivity 42.96%. Business per employee of your Bank during the period stood at Total income of your Bank during the fiscal year 2020 recorded `22.21 Crores, an improvement of 10.22% for the year and the 18.58% growth to reach `15142.16 Crores. Income from advances profit per employee of the Bank stood at `12.48 Lakh during the increased by 17.40% to reach `10670.87 Crores. The yield on fiscal. advances stood at 9.35% and the yield on Investments (excluding trading gain) at 6.70%. The Net Interest Margin for the fiscal year is Expansion of Network at 3.05% as against 3.14%, in the previous year. The Bank has 1263 branches and 1937 ATMs/Recyclers as on Return on Average Equity and Return on Average Total Assets stood March 31, 2020. The Bank also has its Representative Office at Abu at 11.10% and 0.94% respectively. Earnings per Share (face value of Dhabi & Dubai and an IFSC Banking Unit (IBU) in Gujarat International `2 each) of the Bank, as on March 31, 2020 were `7.76. Book value Finance Tec-City (GIFT City). per share had increased to `72.86 during FY 20. Share Value Expenditure Earnings Per Share (face value `2 /- each) of your Bank has improved The total expenses of your Bank increased by 19.29%, to reach at to `7.76 from `6.28 during the year under review. Return on Equity `11937.47 Crores and by an increase of 18.21%, interest expenses during the year reached 11.10% in the fiscal year ended March 31, increased to `8561.85 Crores in FY 20.Operating Expenses of the 2020. Bank during the fiscal year grew to `3375.61 Crores. The cost of deposits of the Bank increased to 5.88% as on March 31, Appropriations (` in Thousands) 2020. The Interest expenses as percentage to total income stood at FY 2019-20 FY 2018-19 56.54%. Transfer to Revenue Reserve 1,474,611 1,439,300 Spread Transfer to Statutory Reserve 3,856,953 3,109,700 During the fiscal year, the Bank’s spread on advances (gross) stood Transfer to Capital Reserve 1,358,289 344,800 at 3.47% and spread on investments (gross) increased to 2.68%. The Transfer to Special Reserve 960,000 840,000 Spread (net of provisions) on advance stood at 2.59%. Dividend pertaining to previous year paid during the year 2,782,229 1,980,092 Asset Quality Tax on dividend 571,895 407,014 The Gross NPA of your Bank as on March 31, 2020 stood at Balance carried over to Balance Sheet 26,166,675 21,742,841 `3530.83 Crores. Gross NPA as a percentage to Gross Advances is 2.84% which is lower than 2.92% as at the end of FY19. The Net NPA Total 37,170,652 29,863,747

16 Annual Report 2019-20

Material Changes and Commitment Affecting Financial The Bank’s shareholders had approved the Employee Stock Option Position of the Bank Scheme 2010 (ESOS 2010) on December 24, 2010 and the Federal There are no material changes affecting the financial position of the Bank Limited Employee Stock Option Scheme 2017 (ESOS 2017) on Bank which have occurred between the end of the financial year of July 14, 2017. the Bank to which the financial statements relate and the date of Under ESOS 2010, the Nomination, Remuneration, Ethics and the report. Compensation Committee granted 3,47,20,200 options during Change in Capital Structure and Listing of Shares the year 2011-12, 2,44,84,750 options during the year 2012-13, 2,60,94,250 options during the year 2013-14, 1,11,56,450 options The paid up share capital of the Bank as on March 31, 2020 during 2014-15, 10,25,000 options during the year 2015-16, is `3,98,53,29,144/- divided into 1,99,26,64,572 equity shares of 9,65,000 options during the year 2016-17 and 1,00,000 options `2/- each. The Bank’s equity shares are listed on the National Stock during the year 2017-18. The options granted which are non- Exchange of India Limited (NSE) and BSE Limited (BSE). During the transferable, with vesting period of 1 to 5 years subject to standard year, 76,12,869 equity shares of `2/- each were allotted under vesting conditions, must be exercised within five years from the date ESOP scheme of the Bank and admitted for trading in NSE and of vesting. As on March 31, 2020, 6,34,63,678 options had been BSE. Further, 1500 shares were allotted by way of release of rights exercised and 1,60,57,341 options were in force. abeyance shares. Under ESOS 2017, the Nomination, Remuneration, Ethics and Important changes which have occurred after the close of Financial Compensation Committee granted 2,23,18,348 options during the Year year 2017-18, 3,72,31,307 options during the year 2018-19 and After the close of Financial Year, 6,95,150 equity shares of `2/- 3,05,22,736 options during the year 2019-20. The options granted each were allotted under ESOP scheme of the Bank and have been which are non-transferable, with vesting period of 1 to 4 years admitted for trading on NSE and BSE. Accordingly, the paid up share subject to standard vesting conditions, must be exercised within five capital of the Bank as on May 31, 2020 is `3,98,67,19,444 divided years from the date of vesting. As on March 31, 2020, 4,91,692 into 1,99,33,59,722 equity shares of `2/- each. options had been exercised and 7,72,27,910 options were in force. The shares are actively traded on NSE and BSE and have not been Other statutory disclosures as required by the SEBI guidelines/ suspended from trading. Securities and Exchange Board of India (Share Based Employee During the year under review, the Bank had allotted 1,000 rated, Benefits) Regulations, 2014 on ESOS are given in website of unsecured, redeemable, non-convertible, Basel III compliant lower the Bank in the link: https://www.federalbank.co.in/web/guest/ tier II subordinated bonds aggregating to `300 crore on private shareholder-information. placement basis. Transfer to Investor Education and Protection Fund

Dividend Transfer of Unpaid/ Unclaimed Dividend Reserve Bank of India vide its circular dated April 17, 2020, has Pursuant to the provisions of Section 124(5) of the Act, the dividend directed that banks shall not make any further dividend payouts from which remained unclaimed/unpaid for a period of seven years from profits pertaining to the financial year ended March 31, 2020 until the date of transfer to unpaid dividend account is required to be further instructions, with a view that banks must conserve capital transferred to the Investor Education and Protection Fund (IEPF) in an environment of heightened uncertainty caused by Covid-19 established by the Central Government. pandemic. As a result, the unclaimed/unpaid dividend for the year 2011-12 Employee Stock Option Scheme (ESOS) amounting to `93,42,315/- which remained unpaid and unclaimed The Bank has instituted Employee Stock Option Schemes, duly for a period of 7 years has been already transferred by your Bank to approved by the shareholders of the Bank to enable its employees the IEPF. including Whole Time Directors to participate in the future growth Your Bank has uploaded the details of unclaimed/ unpaid and financial success of the Bank. The Employee Stock Option dividend for the financial year 2012-13 onwards on its Schemes are formulated in accordance with the SEBI guidelines, as website viz., www.federalbank.co.in and on website of the Ministry amended from time to time. The eligibility and number of options of Corporate Affairs viz., www.iepf.gov.in and the same gets to be granted to an employee is determined on the basis of various revised/updated from time to time pursuant to the provisions of parameters such as scale, designation, performance, grades, period IEPF (Uploading of Information Regarding Unpaid and Unclaimed of service, Bank’s performance and such other parameters as may be Amount Lying with Companies) Rules, 2012. decided by the Nomination, Remuneration, Ethics and Compensation Further, the unpaid dividend amount pertaining to the financial year Committee of the Board from time to time in its sole discretion. 2012-13 will be transferred to IEPF during the Financial Year 2020-21.

17 Directors' Report Transfer of Equity Shares approval of shareholders in ensuing AGM. Accordingly, approval of Pursuant to the provisions of Section 124(6) of the Act and the the shareholders to appoint Ms. Grace Koshie as a Non-Executive Investor Education and Protection Fund (IEPF) Authority (Accounting, Non Independent Director of the Bank through ordinary resolution is Audit, Transfer and Refund) Rules, 2016 notified by the Ministry of being sought at the ensuing AGM of the Bank. Corporate Affairs on September 7, 2016 and subsequently amended Ms. Grace Koshie was appointed as Part time Chairperson of the vide notification dated February 28, 2017, all the equity shares of Bank with effect from November 07, 2019 till her current tenure the Bank in respect of which dividend amounts have not been paid as Director of Bank, with the approval of RBI. Accordingly, approval or claimed by the shareholders for seven consecutive years or more of the shareholders to take on record of appointment of Ms. Grace are required to be transferred to demat account of IEPF Authority. Koshie as Part time Chairperson of the Bank through ordinary Upon transfer of such shares, all benefits (like dividend, bonus, split, resolution is being sought at the ensuing AGM of the Bank. consolidation etc.), if any, accruing on such shares shall also be Pursuant to the recommendation of the NRC, the Board of Directors credited to the Account of IEPF and the voting rights on such shares of the Bank approved the appointment of Mr. Sudarshan Sen (DIN: shall remain frozen till the rightful owner claims the shares. Shares 03570051) as an Additional Director (Independent) of the Bank, which were transferred to the demat account of IEPF Authority can with effect from February 11, 2020. Pursuant to the provisions of be claimed back by the shareholder by following the procedure Section 161 of the Act, he continues to hold office as an Additional prescribed under the aforesaid rules. Director of the Bank, up to the date of the ensuing Annual General Accordingly, 3,00,131 equity shares of 121 members of your Bank Meeting (‘AGM’) or the last date, on which the AGM should have were transferred to Demat Account of IEPF Authority on October 04, been held, whichever is earlier. Your Bank has received a notice in 2019. Your Bank had sent individual notice to all the aforesaid 121 writing from a member proposing the candidature of Mr. Sudarshan members and has also published the notice in the leading English Sen as a Director (Non-Executive Independent) on the Board of the and Malayalam newspapers. Bank. Further, the NRC and the Board of Directors of the Bank have With the transfer of aforesaid shares into IEPF Authority, as at also recommended his appointment as an Independent Director, not March 31, 2020, a total of 59,56,062 equity shares of the Bank liable to retire by rotation, to the Shareholders at the ensuing AGM were lying in the Demat A/c of the IEPF Authority. for a period of five years with effect from February 11, 2020. The details of the nodal officer appointed by the Bank under the During the year, Mr. Ashutosh Khajuria (DIN: 05154975) was provisions of IEPF are disseminated in the website of the Bank viz., re-appointed as Executive Director of the Bank designated as www.federalbank.co.in. Executive Director and Chief Financial Officer for a period of one year with effect from January 28, 2020 to March 31, 2021 with Directors the approval of Reserve Bank of India, Accordingly, approval of the As on March 31, 2020, Bank’s Board consists of 11 members. Besides shareholders for re-appointment of Mr. Ashutosh Khajuria through the Chairperson, a Non-Executive Independent Woman Director, the ordinary resolution is being sought at the ensuing AGM of the Bank. Board comprises of seven Non-Executive Independent Directors and Further, pursuant to the recommendation of the Nomination, three Executive Directors including two Women Directors. Remuneration, Ethics and Compensation Committee (‘NRC’), the During the year, Mr. Shyam Srinivasan was re-appointed as Managing Board of Directors of the Bank with the approval of Reserve Bank of Director & Chief Executive Officer (MD & CEO) (DIN: 02274773) of India, appointed Ms. Shalini Warrier, Chief Operating Officer (DIN: the Bank for a period of one year w.e.f. September 23, 2019 till 08257526 ) as an Additional Director of the Bank, with effect from September 22, 2020 with the approval of Reserve Bank of India January 15, 2020. Pursuant to the provisions of Section 161 of the (RBI), Accordingly, approval of the shareholders for re-appointment Act, she continues to hold office as an Additional Director of the of Mr. Shyam Srinivasan through ordinary resolution is being sought Bank, up to the date of the ensuing Annual General Meeting (‘AGM’) at the ensuing AGM of the Bank. In terms of the provisions of or the last date, on which the AGM should have been held, whichever Section 152 of the Companies Act, 2013, Mr. Shyam Srinivasan, MD is earlier. Your Bank has received a notice in writing from a member & CEO, being longest in office, shall retire at the ensuing Annual proposing the candidature of Ms. Shalini Warrier as a Director General Meeting (AGM) and being eligible, offers himself for re- (Executive) on the Board of the Bank. Further, the NRC and the Board appointment. The Board recommends his appointment. of Directors of the Bank have also recommended her appointment as Pursuant to the recommendation of the Nomination, Remuneration, an Executive Director to the Shareholders at the ensuing AGM for a Ethics and Compensation Committee (‘NRC’), the Board of Directors period of three years with effect from January 15, 2020. of the Bank approved the proposal for appointment of Ms. Grace Mr. Siddhartha Sengupta (DIN: 08467648) and Mr. Manoj Fadnis Koshie as Non-Executive Non Independent Director of the Bank with (DIN: 01087055) were appointed as Additional Non- Executive effect from July 17, 2020 till November 21, 2021 subject to the Independent Directors on the Board of the Bank effective from June

18 Annual Report 2019-20

13, 2019. The shareholders in the 88th Annual General Meeting The Directors have also confirmed that they are not aware of any held on July 25, 2019 approved the appointment of Mr. Siddhartha circumstance or situation, which exists or may be reasonably Sengupta and Mr. Manoj Fadnis as Independent Directors of the anticipated, that could impair or impact their ability to discharge Bank for a period of five (5) years with effect from the date of their their duties with an objective independent judgement and without appointment by the Board. Further, the shareholders of the Bank at any external influence. the 88th Annual General Meeting held on July 25, 2019 approved In the opinion of the Board, the Independent Directors possess the appointment of, Mr. K Balakrishnan as Independent Director of the requisite expertise and experience and are the persons of high the Bank for a period of three (3) years with effect from September integrity and repute. They fulfill the conditions specified in the 25, 2018 and Mr. C Balagopal, as Independent Director of the Bank Act and the Rules made thereunder and are independent of the with effect from August 11, 2019 for a period of five (5) years or till Management. the date of his retirement whichever is earlier. Meetings Mr. Dilip Sadarangani (DlN- 06610897), Part Time Chairman and Independent Director of the Bank, retired from the Directorship of The Board meets at regular intervals to discuss and decide on Bank/ the Bank effective from September 08, 2019, upon completion of 70 business policy and strategy apart from other items of business. The years of age, in accordance with the regulatory requirements of RBI. Board exhibits strong operational oversight with regular presentations CA Nilesh S Vikamsey (DIN- 00031213), Independent Director, retired by business heads to the Board. The Board and Committee meetings from the Bank effective from June 24, 2019, upon completing his are prescheduled and a tentative annual calendar of Board and eight-year term as a Director on the Board of the Bank, in accordance Committee Meetings is circulated to the directors well in advance to with the regulatory requirements of RBI. help them plan their schedule and to ensure meaningful participation at the meetings. Necessary information pursuant to SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, in respect of directors During the year under review fourteen (14) Board Meetings and nine to be appointed and re-appointed at the ensuing Annual General (9) Audit Committee Meetings and other Committee Meetings were Meeting are given in the Annexure to the Notice convening the convened and held, the details of which are given in the Corporate Annual General Meeting scheduled to be held on July 16, 2020. Governance report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013. None of the Directors of your Bank are disqualified for being appointed as directors, as specified in Section 164(2) and Rule 14(1) The details of the constitution of the Board and its Committees are of Companies (Appointment and Qualification of Directors) Rules, given in the Corporate Governance report. 2014. Subsidiaries of the Bank Key Management Personnel As on March 31, 2020, the Bank has one unlisted wholly owned During the year, the following directors/executives continued as Key subsidiary, M/s. Federal Operations and Services Limited and one Managerial Personnel of the Bank: unlisted subsidiary named M/s. Fedbank Financial Services Limited. Mr. Shyam Srinivasan – Managing Director & Chief Executive Officer Federal Operations and Services Limited Mr. Ashutosh Khajuria –Whole–time Director & Chief Financial Officer Federal Operations and Services Limited (FedServ) is a wholly Ms. Shalini Warrier – Executive Director & Chief Operating Officer owned Subsidiary Company of The Federal Bank Limited (the Bank) Mr. Samir P Rajdev – Company Secretary & Vice President incorporated on October 26, 2018. FedServ received approval from In view of retirement of Mr. Girish Kumar Ganapathy as the Company RBI on November 09, 2018 for commencing its operations. FedServ Secretary and Compliance Officer of the Bank w.e.f. November started its operations w.e.f. December 01, 2018. FedServ provides 30, 2019, the Board at its meeting held on November 16, 2019 operational and technology oriented services to the Bank. appointed Mr. Samir P Rajdev (ACS No. 17849) as the Company FedServ’s Board of Directors is comprises of following four members- Secretary and Compliance Officer of the Bank w.e.f December 01, 1. Mr. Balagopal C, Chairman 2019, upon due recommendations of the NRC. 2. Ms. Shalini Warrier, Director Declaration by Independent Directors 3. Mr. Ajith Kumar K K, Director The Bank has received declaration from all the Independent Directors that they continue to meet the criteria of independence as 4. Mr. Johnson K Jose, Whole-time Director provided under the Companies Act, 2013 (the Act) and SEBI (Listing During the year ended on March 31, 2020, FedServ has taken Obligations and Disclosure Requirements) Regulations, 2015 and significant operational activities of the Bank which includes comply with the Code for Independent Directors as specified under CASA Opening, Account Maintenance, Trade Finance, Payment Schedule IV of the Act. & Settlement and ATMs & Branch Monitoring. FedServ is carrying

19 Directors' Report out 78 operational activities of the Bank as on March 31, 2020. Net worth of Fedfina as on March 31, 2020 was `694.04 Crores. Company do not deal in loans and advances, neither it accepts During the year, Bank has invested in equity shares of Company deposits. FedServ is operating from two locations:- Kochi in Kerala amounting to `59.20 Crores. and Visakhapatnam in Andhra Pradesh. The total loan portfolio of Fedfina as on March 31, 2020 is` 3,650.75 The total revenue of FedServ for the period ended on March 31, Crores as against `1,991.75 Crores as on March 31, 2019. The 2020 is `18.95 Crores. The full revenue pertains to services provided total assets of the Company increased to `4,035.10 Crores as on by the Company to the Bank only. The Company had a net profit of March 31, 2020 from `2,128.55 Crores as on March 31, 2019. `1.27 Crores for the year ended on March 31, 2020. The Net worth Note: The figures reported above for Fedfina are as per the audited financial of FedServ at the beginning of the year was `4.71 Crores and closing statements prepared for the consolidation as per AS 21, Consolidated Financial net worth of FedServ as on March 31, 2020 was `10.98 Crores. Statements. During the year, Bank has invested in preference shares of Company Associate Companies amounting to `5 Crores. As on March 31, 2020, the Bank has two Associate Companies FedServ will help the Bank in serving the customers better and named M/s. IDBI Federal Life Insurance Company Limited and reducing the cost of operations significantly. FedServ will also M/s. Equirus Capital Private Limited. help the Bank to improve Turnaround time of various operational processes, improve First Time Right (FTR) rate and enable the bank to Joint Venture in Life Insurance Business become FIRST CHOICE Bank of customers. The Bank’s Joint Venture Life Insurance Company, in association with The Profit after tax of the Company for the year ended March 31, IDBI Bank Limited and Ageas Insurance International N.V. (Formerly 2020 increased to `1.27 Crores from a loss of `0.29 Crores for known as Fortis), namely IDBI Federal Life Insurance Company Limited the year ended March 31, 2019. The total assets of the Company (erstwhile IDBI Fortis Life Insurance Company Limited), commenced increased to `13.69 Crores as on March 31, 2020 from `5.70 Crores operations in March 2008. Currently the Bank has a total stake of as on March 31, 2019. `208 Crores. in the equity of the Company holding 26% of the equity capital. The total premium collected by IDBI Federal Life Insurance Fedbank Financial Services Limited Company Limited during the period ended March 31, 2020 is `1,836 Fedbank Financial Services Limited (Fedfina) is a Subsidiary Company Crores. The Company has declared & paid interim dividend of 4.65% of The Federal Bank Limited (the Bank) incorporated on 17th April, for the FY 2019-20. 1995. Fedfina received approval from RBI on 24th August, 2010 for Mr. Shyam Srinivasan, Managing Director and Chief Executive Officer commencing its operations. It is a Non-deposit taking Non-Deposit- and Mr. Ashutosh Khajuria, Executive Director and Chief Financial Taking & Systemically Important (ND-SI) NBFC. Fedfina provides Officer of the Bank are Non-Executive Directors in IDBI Federal Life various multiple loan products such as Loan against Property (LAP), Insurance Company Limited. Structured Finance and Loan against pledge of Gold ornaments. It also distributes loan products of the Bank. It has over 300 branches Investment Banking Associate across India providing multiple loan products to various segment of As of March 31, 2020, Bank holds 19.90% stake in Equirus Capital borrowers. Private Limited. Pursuant to the right of proportionate representation Fedfina’s Board of Directors is comprises of following six members on Board as well as power to participate in the financial, operational Mr. K Balakrishnan – Chairman matters like approval of business plan, policies, budgets, managerial remuneration, change in KMP etc., the same has been treated as Mr. Anil Kothuri – Managing Director & Chief Executive Officer an associate concern as per AS 23 Accounting for Investments in Mr. Shyam Srinivasan – Director Associates in Consolidated Financial Statements. Equirus Capital Ms. Gauri Rushabh Shah – Director Private Limited is a private company domiciled in India and is engaged Mr. Maninder Singh Juneja – Director in the business of Investment banking. It has 3 subsidiaries named Equirus Securities Private Limited, Equirus Digital Private Limited and Mr. Ashutosh Khajuria - Director Equirus Wealth Private Limited. Total turnover of Equirus Capital The total revenue of Fedfina for the year ended on March 31, 2020 is Private Limited on a consolidated basis was `45.06 Crores in FY 2020 `471.27 Crores as against `258.91 Crores for the year ended March against `51.46 Crores for FY 2019. 31, 2019. Revenue grew by 82% on the back of growth of 83% in Mr. Harsh Dugar, Country Head - Wholesale Banking of the Bank is loan book during the year. The net profit of the Company grew by a Nominee Director on the Board of Equirus Capital Private Limited. 13% to `39.54 Crores for the year ended March 31, 2020 as against `35.08 Crores for the year ended March 31, 2019. The Net worth of Deposits Fedfina at the beginning of the year was` 462.24 Crores and closing Being a Banking Company, the disclosures required as per Rule 8(5)

20 Annual Report 2019-20

(v) & (vi) of the Companies (Accounts) Rules, 2014, read with Section continuous investment in technology upgrades that are designed to 73 and 74 of the Companies Act, 2013 are not applicable to the deliver cost effective best in class customer service. Bank. Bank implemented Information Rights Management (IRM) solution Loans, Guarantees or Investments in Securities to protect and control bank documents and files while sharing. Bank implemented industry Data security standard and Pursuant to Section 186(11) of the Companies Act, 2013, loans become PCI-DSS Certified on November 12, 2019 made, guarantees given, securities provided or acquisition of The Bank has used information technology extensively in its securities by a banking Company in the ordinary course of its business operations, for more details please refer the section on Technology are exempted from the disclosure requirement under Section 134(3) and Digital Updates portion forming part of Directors report. Through (g) of the Companies Act, 2013. its export-financing operations, the Bank supports and encourages Related Party Transactions the country’s export efforts. All related party transactions that were entered during the financial Risk Management year were in the ordinary course of the business of the Bank and The Board of Directors oversees the enterprise wide risk management were on arm’s length basis. There were no materially significant of the Bank. The Risk Management Committee of the Board sets the related party transactions entered by the Bank with Related parties standards and governs the risk management functions, thereby which may have a potential conflict with the interest of the Bank. All bringing in a top to down focus on risk management. Integrated Related Party Transactions were placed before the Audit Committee Risk Management Department co-ordinates and administers the risk of the Board for approval. Prior omnibus approval for transactions management functions in the Bank. The Department has three divi- which are of repetitive nature is obtained from the Audit Committee sions for managing the main risk streams, Credit risk, Market risk and and accordingly the required disclosures are made to the Committee Operational risk. Dedicated teams within the Divisions are responsi- on quarterly basis in terms of the approval of the Committee. ble for assessment, monitoring and reporting of various materialrisks. The policy on materiality of Related Party Transactions and also on Default risk and asset quality of loan portfolio are monitored and dealing with Related Party Transactions as approved by the Audit managed by the Credit Risk Division. The Bank has established an Committee and the Board of Directors is uploaded on the website of independent Mid Office as part of Market Risk Division for real time the Bank and the link for the same is http://www.federalbank.co.in/ monitoring of Treasury activities. Business Continuity Management our-commitments. and Information and Cyber Security measures form part of opera- Since all related party transactions entered into by the Bank were in tional risk management. Risk Management policies are approved by the ordinary course of business and were on an arm’s length basis, the Board of Directorsand reviewed from time to time with updated disclosures as per Form AOC-2 is not applicable to the Bank. There regulatory and internal guidelines. Executive level risk management were also no material contracts or arrangement or transactions with committees namely, Credit Risk Management Committee, Asset Li- related parties during the period. ability Management Committee, Operational Risk Management Committee and Information Security Committee regularly assess the Corporate Social Responsibility respective risks and direct corrective actions wherever required. The Corporate Social Responsibility (CSR) has been an inherited & inbuilt risk management functions are co-ordinated by a senior Executive element of our fundamentals right from the day the Bank was designated as Chief Risk Officer who reports directly to the Managing founded. Our founder’s values & ethos based on trust got embedded Director & CEO. The Executive level committees report to the Risk in the Bank’s policies & principles. CSR in Federal Bank began with Management Committee of the Board on the various risk events and the first act of cultivating banking habits in the agrarian society to the direction and level of the various risks. All material risks of the effectively utilize idle money for productive purposes. Bank emerging in thecourse of its business are identified, assessed The details of the CSR initiatives undertaken during the financial year and monitored in the Internal Capital Adequacy Assessment Process ended March 31, 2020 and other details required to be given under (ICAAP). In our view, all the material risks of the Bank are identified, section 135 of the Companies Act, 2013 read with rule 8(1) of the assessed and managed adequately. Companies (Corporate Social Responsibility Policy) Rules, 2014 are Vigil Mechanism/Whistle Blower Policy given in Annexure I forming part of this Report. Bank has a comprehensive Fraud Risk Management Policy that Energy Conservation, Technology Absorption, Foreign speaks on various control systems, monitoring and surveillance Exchange Earnings and Outgo mechanism so as to prevent, detect and investigate frauds both The Bank has undertaken various initiatives for energy conservation internal and external. Vigilance department plays a dynamic role in at its premises, further details are given under Principle 6 of Section prevention as well as investigation of frauds. Preventive measures E of the Business Responsibility Report. The Bank prides itself on include spreading awareness on potential fraudulent activities and

21 Directors' Report instigating a compliant environment among all employees of the M/s M M Nissim & Co, Chartered Accountants, Joint Statutory Bank. Effectiveness of fraud prevention mechanism is ensured by Central Auditors of your Bank, retire on the conclusion of the conducting Preventive Vigilance Workshops, Preventive Vigilance Eighty Nineth Annual General Meeting of the Bank. They have Audits and alerts to all employees on regular basis that disseminates been auditors of the Bank for last four financial years. Pursuant various modus operandi of frauds in the banking industry. Bank to the guidelines issued by the Reserve Bank of India (RBI), an has been keen on educating customers against fraudulent activities audit firm is allowed to continue as the statutory auditor of a through various channels including SMS, E-mails, posters at bank for a continuous period of four years only. Branches, scroll messages on Bank website and internet banking Accordingly, it is proposed to appoint M/s. Varma & Varma, webpage, etc. Suspected frauds/complaints/internal irregularities are Chartered Accountants (Registration No. 004532S) together with promptly investigated by the Vigilance Department. M/s. Borkar & Muzumdar, Chartered Accountants (Registration No. As part of Detective Vigilance all the cases of suspected frauds 101569W) as Joint Statutory Central Auditors of the Bank in place reported in the Bank are investigated in detail. Lacunae if any of M/s B S R & Co. LLP, Chartered Accountants and M M Nissim & observed during the course of investigation are plugged and Co, Chartered Accountants who have completed four years as the wherever warranted systemic corrections are implemented. Statutory Auditors of the Bank. Bank has a robust Whistle Blower Policy termed as Protected Disclosure The appointments of Joint Statutory Central Auditors along with the Scheme (PDS) with a view to enhancing public confidence in the relevant details are proposed to the members in the Notice of the Bank and also in compliance of rules in this regard. The policy aims at Eighty Nineth Annual General Meeting. establishing an efficient vigil mechanism in the Bank to quickly spot RBI vide its letter DOS. ARG. No. PS-8/08.09.005/2019-20 dated aberrations and deal with it at the earliest. It is disseminated among June 04, 2020 had granted approval for appointment of M/s. Varma the employees assuring confidentiality and protection to the whistle & Varma, Chartered Accountants and M/s. Borkar & Muzumdar, blower against any personal vindictive actions such as humiliation, Chartered Accountants as Joint Statutory Central Auditors of the harassment or any other form of unfair treatment. Directors and Bank for FY 2020-21. Employees of the Bank, employee representative bodies, customers, There is no qualification or adverse remark in Auditors’ Report. There stakeholders, non-governmental organizations (NGO) and members is no incident of fraud requiring reporting by the Auditors under of the public can lodge complaints/disclosures under this scheme. Section 143(12) of the Act. The Head of Vigilance Department in the Bank will be the nodal officer to receive complaints under the scheme. In exceptional Secretarial Audit and Secretarial Compliance Report cases the Chairman of the Audit Committee may act as the nodal Pursuant to the provisions of Section 204 of The Companies Act, officer. A dedicated e-mail ID is provided for sending complaints/ 2013 your Bank has appointed CS EP Madhusudhanan, Partner of SEP disclosures under PDS. An e-mail ID for sending complaints to the & Associates, Company Secretaries as Secretarial Auditor to conduct Chairman of Audit Committee in exceptional cases is also provided. Secretarial Audit of the Bank for the FY 2019-20. Accordingly, the Vigilance Department conducts investigation of all complaints / Secretarial Audit Report for FY 2019-20 is annexed to this report as information received through the PDS and submits report to MD Annexure II. There are no reservations, adverse remark or disclaimer & CEO. The details of the complaints and findings are also placed in the Secretarial Audit Report. before the Audit Committee of the Board on a quarterly basis. The No offence of fraud was reported by the Secretarial Auditor of the scheme is popularised through various measures such as preventive Bank. vigilance classes, internal circulars, alerts etc. No personnel have been denied access for giving any information as envisaged in the Pursuant to circular no. CIR/CFD/CMD1/27/2019 dated February 09, Protected Disclosure scheme. The PDS Document is made available 2019, issued by SEBI, the Bank has obtained Secretarial Compliance in Intranet and Bank’s website, www.federalbank.co.in under section Report, from Practicing Company Secretaries on compliance of “Customer Relations – Codes, Policies & Disclosures. all applicable SEBI Regulations and circulars/ guidelines issued thereunder and the copy of the same was submitted with the Stock Significant and Material Orders passed by the Regulators Exchanges. or Courts or Tribunals Impacting the Going Concern Status of the Company and its Future Operations Compliance with Secretarial Standards on Board and The Bank has not received any significant or material orders passed General Meetings by any Regulatory Authority, Court or Tribunal which shall impact the The Bank has complied with Secretarial standards issued by the going concern status and Bank’s operations in future. Institute of Company Secretaries of India on Board Meetings and General Meetings. Statutory Auditors M/s B S R & Co. LLP, Chartered Accountants together with

22 Annual Report 2019-20

Extract of Annual Return Corporate Governance Pursuant to the provisions of Section 134(3)(a) and Section 92(3) of Your board seeks to embed and sustain a culture that will enable the Act and Rule 12(1) of the Companies (Management and Admin- us to achieve our objectives through effective corporate governance istration) Rules, 2014, the extract of Annual Return as at March 31, and enhance transparent engagement with key stakeholders. 2020 forms part of this Report as Annexure III. The Annual Return In our constant endeavour to benchmark our policies and practices will be made available in the Bank's website, www.federalbank.co.in and in light of various developments in the realm of corporate under section "Shareholders Information". governance and regulatory reforms, your Bank continues to maintain Consolidated Financial Statements and implement the highest standards of corporate governance and ethical business practices. In accordance with the provisions of Section 129(3) of the Companies A separate report on Corporate Governance setting out the Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014, the governance structure, principal activities of the Board and its Bank has prepared its Consolidated Financial Statement including its Committees and the policies and practices that enable the Board subsidiaries Fedbank Financial Services Limited and Federal Operation to fulfill its stewardship responsibilities together with a Certificate and Services Limited and Associates IDBI Federal Life Insurance from the Secretarial Auditor of the Bank regarding compliance of Company Limited and Equirus Capital Private Limited, which is conditions of Corporate Governance as stipulated under Listing forming part of this Annual report. The financial position and Regulations forms part of this Annual report. performance of its subsidiaries/ Associates is given in Form AOC-1, the statement containing salient features of the financial statements Internal Complaints Committees (Information under the of the subsidiaries/Associate Companies/Joint Venture. Sexual Harassment of Women at Workplace (Prevention, In accordance with third proviso to Section 136(1) of the Companies Prohibition and Redressal) Act, 2013) Act, 2013, the Annual Report of the Bank, containing therein its Bank had constituted Internal Complaints Committee, as per letter standalone and the consolidated financial statements has been and spirit contained in the provisions of “The Sexual Harassment hosted on its website, www.federalbank.co.in. Further, as per fourth of Women at Workplace (Prevention, Prohibition and Redressal) proviso to the said section, the Audited Annual Accounts of the Act, 2013”, at 9 Zones and Head Office to prevent and redress the said Subsidiaries Company of the Bank, considered as part of the complaints relating to sexual harassment and to organize workshops/ consolidated financial statements, have also been hosted on the awareness programs to empower women employees while handling Bank’s website www.federalbank.co.in. The said documents have cases relating to sexual harassment. Workshops/ awareness been hosted on the website of the subsidiary Companies of the Bank programs regarding women empowerment were conducted at also, in compliance with the said section. various locations pan India. The data with regard to the redressal The documents/details available on the Bank’s website of complaints by the Internal Complaints Committee are as follows: (www.federalbank.co.in) will also be available for inspection a No. of complaints received for the year FY 2019-20 5 by any Member at its Registered Office. Further, pursuant to the b No. of complaints disposed of during FY 2019 - 20 4 provisions of Accounting Standard (‘AS’) 21, Consolidated Financial Statements notified under Section 133 of the Companies Act, 2013, c No. of cases pending for more than 90 days Nil read together with Rule 7 of the Companies (Accounts) Rules, 2014 d No. of workshops/ awareness program against 11 sexual harassment carried out issued by the Ministry of Corporate Affairs, the Consolidated Financial e Nature of action taken by the employer/ Appropriate Statements of the Bank along with its subsidiaries and associates for District Officer action taken the year ended March 31, 2020 forms part of the Annual Report. Dividend Distribution Policy Requirement for Maintenance of Cost Records In accordance with the Regulation 43A of Securities and Exchange The Bank is not required to maintain cost records as specified by Board of India (Listing Obligations and Disclosure Requirements) the Central Government under section 148(1) of the Companies Act, Regulations, 2015, the Bank has formulated a Dividend Distribution 2013. Policy and the same is annexed herewith as Annexure IV. The policy Management Discussion and Analysis Report has been displayed on the Bank’s website at www.federalbank.co.in In compliance with the Regulation 34 of the SEBI (Listing Obligations Internal Control Systems and their Adequacy and Disclosure Requirements) Regulation, 2015, separate Section on The Bank has through the years developed and stabilized an effective Management Discussion and Analysis, as approved by the Board, internal control system calibrated to the risk appetite of the Bank which includes details on the state of affairs of the Bank, forms part and aligned to the scale, size and complexity of its operations. The of this Annual Report. scope and authority of the internal audit function is defined in the

23 Directors' Report Audit and Inspection Policy of the Bank, duly approved by the Board Board of Directors and Senior Management on the quality and of Directors. In order to help Bank achieve its mission of adopting effectiveness of the bank’s internal control, risk management and the best professional practices prevailing in the industry, while governance systems and processes, thereby helping the Board and framing the policy, substantial inputs are taken from - RBI guidance Senior Management protect the bank and its reputation. note on Risk Based Internal Audit, ‘The internal audit function Policy on Board Diversity in banks’ published by Basel Committee on Banking Supervision and Model Audit Manual on Internal & Concurrent Audit Systems Policy on Board Diversity of the Bank mainly depends on the in Public Sector Banks. Audit and Inspection Policy is reviewed qualifications for appointment of Directors of the Bank as contained annually. Policy is reviewed considering various guidelines of RBI, in the Banking Regulation Act, 1949 and satisfying the Fit and Proper Basel Committee recommendations, ICAI guidelines, other statutory Criteria for directors as per the regulatory requirement of RBI. / regulatory guidelines, directions of Board / Audit Committee of the The Bank continuously seeks to enhance the effectiveness of its Board Board issued from time to time and periodic internal guidelines / and to maintain the highest standards of corporate governance and instructions issued by the Bank. At the enterprise level, the Inspection recognizes and embraces the benefits of diversity in the boardroom. and Audit Department, on a continuous basis, assesses and monitors Diversity is ensured through consideration of a number of factors, the effectiveness of the control systems and its adequacy to meet including but not limited to skills, regional and industry experience, the growing complexities. The audit function essentially validates background and other qualities. In forming its perspective on the compliance of Bank’s processes and operations with regulatory diversity, the Bank also take into account factors based on its own guidelines, accounting procedures and Bank’s own internal rules and business model and specific needs from time to time. guidelines. A department level group meets on periodical intervals to Board Diversity enhances the quality of performance of the Board, discuss latest internal / RBI / regulatory guidelines for ensuring that ushers in independence in the performance of the Board; eradicates the required changes are implemented for making the audit function the gender bias in the Board; achieves sustainable and balanced updated and dynamic. performance and development; support the attainment of strategic The Bank has a robust system towards escalating the audit findings objectives & also ensures compliance of applicable laws and good to appropriate levels in the hierarchy of Management and discussions corporate practices. in various committees towards suggesting corrective action and its The Nomination, Remuneration, Ethics and Compensation follow up. The Bank in compliance of the requirements of Section Committee has the responsibility for leading the process for Board 138 of the Companies Act, 2013, has designated the Head of appointments and for identifying and nominating, for approval by Inspection and Audit Department as Internal Auditor. Audit being an the Board, candidates for appointment to the Board. The benefits independent function, the Internal Auditor is reporting to the Audit of diversity continue to influence succession planning and continue Committee of the Board of Directors. The Bank has various types of to be the key criteria for the search and nomination of directors to audit which inter-alia include Risk Based Internal Audit, Information the Board. System Audit, Concurrent Audit, Gold Loan Audit and Management Board appointments will be based on merit and candidates will Audit. Branches are risk rated and the frequency of Risk Based Internal be considered against objective criteria, having due regard for the Audit is decided based on Risk – Audit Matrix defined in Audit and benefits of diversity on the Board, including gender. While making Inspection Policy. Significant Audit findings and observations are Board appointments, the requirement as per the Companies Act, presented to Inspection Review Committee of Executives and a report 2013 for appointment of at least one woman director on the Board on the meetings of Inspection Review Committee of Executives of the Bank will also be considered. along with significant audit findings, directions / suggestions of the Committee and action taken in such cases are placed to the Audit Bank’s Policy on Directors’ Appointment and Committee of the Board for review periodically. Other findings are Remuneration including Criteria for Determining placed before a department level committee called the ‘Inspection Qualifications, Positive Attributes, Independence of a Director and other matters provided under sub-Section Department Review Committee’ for review and its observations are (3) of Section 178 of Companies Act, 2013. placed before Inspection Review Committee of Executives. a. Qualifications, Experience and knowledge As per the requirement of Companies Act, 2013, Bank has formulated 1. The Board should bring to their tasks a balanced mix of Internal Financial Controls framework. Risk and Controls associated knowledge, skills, experience, and judgment relevant to the with each process in the Bank are documented under the Internal Bank’s policies, operations, and needs. Not less than fifty-one Financial Controls Framework. Inspection and Audit Department percent of the total number of Directors shall be persons having plays a significant role in testing the control effectiveness for each special knowledge, skills, or valuable experience in one or more process under the framework. fields, such as banking, finance, management, economics, The Internal Audit function provides independent assurance to the law, accountancy, agriculture and rural economics, cooperative

24 Annual Report 2019-20

movement, trade, industry, infrastructure, engineering, and Policy on Remuneration technology. At least two Directors shall be persons having Policy on Remuneration to Non-Executive Directors/ special knowledge or practical experience in agriculture and rural Independent Directors economy, cooperation, or small-scale industry. The Bank shall The Policy of the Bank for the payment of remuneration to Non- ensure to include in its Board need based representation of skills Executive Directors / Independent Directors of the Bank is explained such as marketing, technology & systems, risk management, in the Comprehensive Compensation Policy for Non-Executive strategic planning, treasury operations, credit recovery, Payment Directors / Independent Directors (other than Part Time Chairman), and Settlement Systems etc. as approved by the Board of Directors and is disclosed on the website 2. The directors should be able to devote sufficient time and of the Bank and a web link thereto is: http://www.federalbank.co.in/ attention to the discharge of their duties to the Bank. shareholder-information. 3. The directors shall preferably be in the range of 35-70 years of As required under Banking Regulation Act, 1949 prior approval of age. RBI is required, to give remuneration to Non-Executive Part Time b. Disqualification / Conflicts of interest Chairman of the Board. 1. The Bank’s Directors shall be subject to the disqualifications / As per the Policy, during FY 2019-20, Non-Executive Independent prohibitions contained in the Companies, Act 2013 and the Directors of the Bank are paid sitting fee for attending Board/ Banking Regulation Act, 1949 with respect to directorship of Committees meetings and reimbursement of expenses for companies in general or banking companies in particular. participation in Board/Committee meetings and in addition, profit 2. A Director shall not be a director of any other company, or linked commission for FY 2018-19 were also paid during the year. partner or proprietor of a firm, where such directorship, Non- Executive Part Time Chairman was paid remuneration in partnership, or proprietorship involves or is likely to involve addition to sitting fee with the approval of RBI. actual or potential conflicts of interest as a Director of the Bank. A Director shall promptly inform the Board / committee Policy on Remuneration to MD & CEO, Executive Directors, of any actual or potential conflicts of interest with respect to Key Managerial Personnel and other Employees any matter that may come up for the consideration of the Board The Compensation / Remuneration Policy of the Bank as approved by or of any committee of which he is a member, and shall refrain the Board contains the policy for payment of remuneration to MD from participating in a discussion on the matter. & CEO, Executive Directors, Key Managerial Personnel and for all the c. Suggested criteria for determining attributes of a director other employees of the Bank. as required to be specified under Companies Act, 2013 include As per the guidelines given by RBI, Compensation/Remuneration 1. Integrity in personal and professional dealings. Policy has been designed with the following Core Principles: 2. Wisdom and ability to take appropriate decisions. Core Principles 3. Ability to read and understand financial statements 1. Effective governance of Compensation. 4. Ability to deal with others with a sense of responsibility, firmness, and cooperation. 2. Alignment of Compensation with Prudent Risk Taking. 5. Refrain from any action that would lead to loss of his 3. Effective Supervisory Oversight and Stakeholder Engagement. independence. Compensation of Managing Director & CEO, Whole Time Directors d. Suggested criteria for determining Independence of a and Senior Management Personnel. director The compensation paid out to the referred functionaries is divided The criteria of independence of a director are determined based on into two components: the conditions specified in Section 149 (6) of the Companies Act, 1. The fixed compensation is to be determined based on the industry 2013 and SEBI (Listing Obligations and Disclosure Requirements) standards, the exposure, skill sets, talent and qualification Regulations, 2015. The independent director shall at the first attained by the official over his/her career span. (Approval from meeting of the Board in which he participates as a director and RBI to be taken as per section 35B of the Banking Regulation thereafter at the first meeting of the Board in every financial year Act while deciding the fixed and variable compensation part for or whenever there is any change in the circumstances which may Managing Director & CEO and Whole Time Directors) affect his status as an independent director, give a declaration that 2. The variable compensation for Managing Director & CEO, he/ she meets the criteria of independence. The terms and conditions WTD’s and Senior Management Personnel to be fixed based of appointment of Independent Director is disclosed on the website on organizational performance and KPAs set for the official. of the Bank and a web link thereto is: https://www.federalbank.co.in/ The organization’s performance is charted based on the our-commitments. Performance Scorecard which takes into account various

25 Directors' Report financial indicators like revenue earned, cost deployed, profit of an act or decision taken by the official which has brought forth a earned, NPA position and other intangible factors like leadership negative contribution to the bank at a prospective stage. If an Official and employee development. Variable pay will be paid purely covered under Compensation Recovery Policy, is responsible for any based on performance and is measured through Score Cards act or omission or non compliance of regulatory guidelines resulting for Managing Director & CEO / WTDs. The Score Card provides a in a penalty being imposed by any Regulators or engages in a mix of Financial and Non-Financial, Quantitative and Qualitative detrimental conduct against the interests of the Bank, as determined Metrics. KPAs to contain targets on Risk Adjusted Metrics such by the Nomination Committee of the Board, within 36 months from as RAROC, RARORAC, in addition to target on NPAs. While the date of payment of variable compensation, the Bank may require considering/ recommending the variable pay in respect of such covered official to reimburse the Bank within 6 months for all, Managing Director & CEO and Whole Time Directors, serious or a portion of, any bonus, incentive payment, equity based award or supervisory observations (if any) shall be factored, which will be other compensation received by such Covered Official. ensured through suitable processes Committees to mitigate risks caused by an individual decision Grander Compensation Package to Executives in Level IV and In order to further balance the impact of market or credit risks caused above to the Bank by an individual decision taken by a senior level executive, The Compensation package applicable to Executives in Level IV to MD & CEO or WTD’s, the bank has constituted various committees to VII are governed under the provisions of Grander Compensation take decisions on various aspects: Package, a performance linked pay structure implemented in the Bank from with effect from 01.05.2017. Annual Increment under • Credit limits are sanctioned by committees at different levels. the “Grander Compensation Package” will depend on the annual • Investment decisions of the Bank are taken and monitored by performance rating of the Executive concerned. Investment committee and there is an upper limit in treasury dealings where individual decisions can be taken. Compensation paid to Employees on IBA Package • Interest rates on asset and liability products for different buckets The compensation paid to Award Staff and Officers coming under are decided and monitored by the Asset Liability Committee Scale I to III is fixed based on the periodic industry level settlements of the Board (ALCO). Banks’ exposures to liquidity risk are also between Indian Banks’ Association. The present scale of pay and other monitored by ALCO. service conditions applicable to employees, whose compensation package is governed under IBA package is as per provisions of 10th Executive Director (ED) level Committee for reviewing the linkage of Risk based performance with Remuneration Bipartite Settlement. Limit on Variable Pay An ED level Committee comprising of ED and Heads of Risk Division and HR Department ensures alignment of risk and financial control The variable compensation offered to an official would not exceed in Compensation in respect of employees. 70% of the total fixed compensation Severance Pay and Guaranteed Bonus a) The Committee shall review the Compensation paid vis-a-vis risk taking by the Executives to ensure that prudent risk taking is Severance pay (other than gratuity or terminal entitlements or as recognized in the compensation framework entitled by statute) is not paid to any official of the Bank b) The Committee shall analyses the risk reward correlation and Guaranteed Bonus on joining in the form of Cash/equities/deposits/ ensure that excess risk taking is not encouraged bonds/debentures etc. or multiyear guaranteed bonus (like retainer c) The Committee shall review the performance based variable fees) will not be paid to any official in the organization. However, to compensation paid every year and ensure that an optimum risk attract talent, sign on bonus or joining bonus can be paid, but this reward balance is maintained. will be limited to the first year only and it will be given as Employee Stock Options only d) Linkage of performance during a performance measurement period with levels of remuneration. Hedging e) Bank's policy on deferral and vesting of variable remuneration No compensation scheme or insurance facility would be provided and criteria for adjusting deferred remuneration before vesting by the Bank to employees to hedge their compensation structure and after vesting. to offset the risk alignment mechanism (deferral pay and claw back arrangements) embedded in their compensation arrangement. f) The Committee shall establish appropriate compliance arrangements to ensure employees do not insure or hedge their Compensation Recovery Policy compensation structure. Malus/ claw back arrangement or a compensation recovery policy is g) The Committee shall update the details to the Nomination and provided, which will entail the Bank to recover proportionate amount Remuneration Committee on an annual basis. of variable compensation paid to the above functionaries on account

26 Annual Report 2019-20

Deferred compensation and Performance Linkage position and operational budget so as to enable the Board to In the event of variable compensation paid to MD & CEO, ED and make informed financial decisions Senior Executives exceeds more than 50% of the fixed compensation b. Provides Leadership in developing strategies and organizational for the year on account of high level of Bank’s performance, 60% plans with the management and the Board of Directors of the variable pay so entitled to the official will be deferred for c. Ensures that the Board is kept informed about all issues payment over a period of 3 years. The amount is parked in an escrow concerning the Bank account and the payment will be made in the ratio of 20:30:50 over d. Media interaction and ability to project positive image of the a period of three years, i.e. Company • 20 % of the deferred compensation will be paid in the first year e. Effectively pursue the performance goals in relation to mission • 30% of the deferred compensation in the second year; and and objective of the organization • 50 % of the deferred compensation in the third year f. Motivating employees, providing assistance & directions Familiarization Programmes for Independent Directors g. Supervising & Safeguard of confidential information The familiarising programme for the Independent Directors are h. Establishment of internal control processes, monitoring policies disclosed in the Report on Corporate Governance that forms part of and encouraging suggestions this Annual Report. The details of such familiarization programmes i. Cultivates effective Relationship with Industry Forums, are also disclosed on the Bank’s website, www.federalbank.co.in Community and business leaders, Regulatory Bodies and Public under section “Shareholders Information”. Officials. Board Evaluation j. Ensures compliance with all legal and regulatory requirements. Pursuant to the provisions of the Companies Act, 2013 and II) Performance Evaluation of Independent Directors including Regulation 17(10) and other applicable Regulations of the SEBI Chairman (Listing Obligations and Disclosure Requirements), Regulations, Criteria for evaluation include: 2015, the Board has carried out an annual performance evaluation a. Attendance at the Board and Committee meetings of its own performance and of the directors individually, as well as the evaluation of the working of its various Committees for the year b. Study of agenda papers in depth prior to meeting and active under consideration. participation at the meeting The evaluation process was initiated by putting in place, a structured c. Contributes to discussions on strategy as opposed to focus only on agenda questionnaire after taking into consideration inputs received from the Directors, covering various aspects of the Board’s functioning, such d. Participate constructively and actively in the Committee of the as adequacy of the composition of the Board and its Committees, Board in which they are chairpersons or members Board culture, execution and performance of specific duties, e. Exercises his/her skills and diligence with due and reasonable obligations and governance. care and brings an independent judgement to the Board Thereafter a separate exercise was carried out to evaluate the f. The Director remains abreast of developments affecting the performance of individual Directors, including the Chairman of Company and external environment in which it operates the Board, who were evaluated on specified parameters. The independent of his being appraised at meetings performance evaluation of the Independent Directors was carried g. Knowledge and Competency: a) How the person fares across out by the entire Board, other than the Independent Director different competencies as identified for effective functioning of concerned. The performance evaluation of the Chairman and the the entity and the Board b) Whether the person has sufficient Non Independent Directors were carried out by the Independent understanding and knowledge of the entity and the sector in Directors. The Directors expressed their overall satisfaction with the which it operates evaluation process. h. Whether the person demonstrates highest level of integrity, I) Performance Evaluation of Non-Independent Directors (MD including conflict of interest disclosures, maintenance of & CEO and Executive Director) confidentiality, etc Criteria for Evaluation include: III) Performance Evaluation of Board and Committees Quantitative Targets: A. Criteria for Evaluation of Board include: a. Achievements of performance against targets set i) If Board is of appropriate size and has the appropriate balance and Qualitative Targets: diversity of background, business experience, industry knowledge, a. Appraises the Board regarding the organization’s financial skills and expertise in areas vital to the Bank's success, representing

27 Directors' Report sectors laid down by the regulators, given its current and future guidelines contain certain principles that are to be adopted by position ii) New Board members participate in an orientation companies as part of their business practices and require disclosures program to educate them on the organization, their responsibilities, regarding the steps taken to implement these principles through and the organization’s activities, the Board encourages a culture a structured reporting format, viz. Business Responsibility Report. that promotes candid communication iii) The Board oversees Pursuant to Regulation 34(2)(f) of SEBI (Listing Obligations and management’s procedures for enforcing the organization’s code of Disclosure Requirements), Regulations, 2015, your Bank has conduct, Action Taken Reports on the discussion/directions of the prepared the Business Responsibility Report and forms part of this Board are submitted at regular intervals to the Board iv) The Board Annual Report. oversees risk management through inputs from the Risk Management Technology and Digital Updates and Measures taken Committee v) The Board considers the quality and appropriateness in IT Governance, Information Security, IT Audit, IT of financial reporting, including the transparency of disclosures vi) Operations, IT Services Outsourcing The Board ensures compliance with the relevant provisions of the Companies Act and other regulatory provisions as applicable to Technology and Digital updates the Bank vii) The Board oversees the compliance processes viii) The IT provides the strong foundation that enables your Bank to grow Board views the organization’s performance from the competitive extensively and gain market share. In the following paragraphs, we perspective - industry and peers performance, industry trends provide more details of the entire governance structure over IT, with and budget analysis and with reference to areas where significant focus on information security. differences are apparent etc. ix) The Board ensures compliance with IT governance is the processes that ensure the effective and the relevant provisions of the Companies Act and other regulatory efficient use of IT in enabling our organization to achieve its goals. provisions as applicable to the Company. x) The Board has defined It is an integral part of corporate governance and consists of the an effective Code of Conduct for the Board and Senior Management. organizational structures, leadership and process that ensure IT xi) Whether the Board monitors and manages potential conflicts of sustains and extends the organization's strategy and objectives. interest of management, members of the board of directors and The governance of IT is effectively supervised by the Board of Directors shareholders, including misuse of corporate assets and abuse in through the IT & Operations Sub-Committee of the Board. The IT & related party transactions. Operations Committee that meets on a quarterly basis is chaired by B. Criteria for Evaluation of Committees include: an independent Non-Executive Director and has two Non-Executive i) The Committee’s Terms of Reference and composition are reviewed Directors as members, along with the MD & CEO. All members of annually and is found to be constituting of Directors representing the Committee have extensive experience in IT & Operations and are sectors laid down by the regulator and continue to be appropriate ii) able to provide effective guidance and direction to the management Committee meetings are organized properly in number, timing and team. location iii) The Committee allocates the right amount of time for its Executive level committee which oversee the IT governance function work etc iv) The Committee is effective in carrying out its mandate v) include the Operations Risk Management Committee (ORMC), Whether adequate independence of the Committee is ensured from the Information Security Committee (ISC) and the Project Steering the Board vi) Whether the Committee has fulfilled its functions as Committee (PSC). assigned by the Board and laws as may be applicable. Your Bank has a well-defined Information System Security Policy and IV) Assessment of flow of information a Cyber Security Policy. The effective implementation of these policies is supervised by the Information Security Committee and by the IT & Criteria for Evaluation include: Operations Committee of the Board. The agenda and related information are circulated in advance of In recognition of the need for enhanced systems security, your Bank meetings to allow board members sufficient time to study and conducts a wide range of system audits, using internal and external understand the information, Information on the annual operating auditors. These range from the quarterly Vulnerability Assessments plans and budgets and other updates are provided to the Board; (VA) and Penetration Testing (PT) to concurrent audits to an annual Updates on operating results of the Bank is furnished to the Board, end to end audit of IT infrastructure. All the applications, both web periodically etc. Update on the compliance with the regulatory, based and mobile based apps exposed to internet are subjected to statutory or listing requirements are placed before the Board. external penetration testing (PT) before releasing to use. Business Responsibility Report Bank has deployed best in the class infrastructure to provide In July 2011, the Ministry of Corporate Affairs, Government of availability of service to users and customers without fail. The installed India, came out with the ‘National Voluntary Guidelines on Social, infrastructure is tested for its reliability and robustness by periodic Environmental and Economic Responsibilities of Business’. These audits. In addition, periodic Disaster Recovery Tests are conducted to

28 Annual Report 2019-20

ensure the ability to move to the Disaster Recovery infrastructure in 5. that proper internal financial controls were in place and that the the event of downtime in the main production capability. financial controls were adequate and were operating effectively; The Bank is conducting employee and customer awareness on cyber 6. that systems to ensure compliance with the provisions of all frauds, vishing/phishing attacks etc through SMS, eMails and popup applicable laws were in place and were adequate and operating messages in banks’ website and mobile banking applications. Bank effectively. has done separate awareness workshops for Directors on the cyber Awards and Accolades frauds and its impacts. As a measure to assess the effectiveness Your Bank has won various awards and accolades in the Financial of awareness among employees bank is conducting ‘Redteam’ Year 2019-20 also. These awards are actually a testimony of Bank’s exercises on a quarterly basis. Bank has implemented most of commitment on digital front with various initiatives which brought the Gopalakrishna Committee recommendations on Information in acclaim from both Customers and stakeholders. Security, Electronic Banking, Technology Risk and Cyber Fraud. The progress of pending items for implementations are followed up for Your Bank has won Technology senate award instituted by Indian completion in a time bound manner. Express group for transforming recruitment process enabled by artificial intelligence-arguably a first in the domestic banking space. Particulars of Employees Your Bank won the first prize as "The Best Technology Bank of the The statement containing particulars of employees as required under year" in the Banking Technology 2019 awards organized by IBA. Section 197(12) of CA 2013 read with Rule 5(2) of the Companies The Bank was conferred with the ‘Best Bank Small – 1st Runner Up’ (Appointment and Remuneration of Managerial Personnel) Rules, award under the ‘Overall Best Bank’ category, at the 11th edition 2014 is available on the website: https://www.federalbank.co.in/ of ‘Magna Awards’ instituted by ‘Business world’. Your Bank was shareholder-information. also honored with ‘The Best Bank of Year 2019’ award by Dhanam The ratio of the remuneration of each Director to the median Magazine. remuneration of the employees of the Bank and other details in Your Bank is giving increased emphasis on the use of Robotic terms of Section 197(12) of the Companies Act, 2013 read with Process Automation. As recognition of the efforts, your Bank Rule 5(1) of the Companies (Appointment and Remuneration of has won the striking ‘Automation Excellence’ award, under the Managerial Personnel) Rules, 2014, are forming part of this report category ‘Excellence in Banking & Financial Services’, at an event as Annexure V. hosted by UiPath in association with ‘The Economic Times’. Bank has automated, using RPA platform, 130 processes at centralized Director’s Responsibility Statement operations level as of March 31, 2020. Your Bank has also won NSDL To the best of our knowledge and belief and according to the special recognition award for The First Bank in India to offer online information and explanations obtained to us, the Directors make the demat account opening facility and Best Innovative Strategy of the following statements in terms of Section 134 (3) (c) of the Companies year by CII-CDT& ETBFSI Excellence Awards 2019 for the category Act, 2013: Most Innovative partnership strategy of the year- by a Bank, instituted 1. that in the preparation of the annual financial statements for by Economic Times. the year ended March 31, 2020, the applicable accounting Acknowledgement standards have been followed along with proper explanation The Board of Directors places on record its sincere thanks to relating to material departures, if any; the Government of India, Reserve Bank of India, various State 2. that such accounting policies as mentioned in the Notes to Governments and regulatory authorities in India and overseas for the Financial Statements have been selected and applied their valuable guidance, support and cooperation. The Directors consistently and judgment and estimates have been made that wish to express their gratitude to Investment Banks, Rating Agencies are reasonable and prudent so as to give a true and fair view of and Stock Exchanges for their wholehearted support. The Directors the state of affairs of the Bank as at March 31, 2020 and of the record their sincere gratitude to the Bank’s shareholders, esteemed profit of the Bank for the year ended on that date. customers and all other well-wishers for their continued patronage. 3. that proper and sufficient care has been taken for the The Directors express their appreciation for the contribution made by maintenance of adequate accounting records in accordance every employee of the Bank. with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud For and on behalf of the Board of Directors

and other irregularities; Sd/- 4. that the annual financial statements have been prepared on a Aluva Ms. Grace Koshie (DIN-06765216) going concern basis; Date: June 19, 2020 Chairperson of the Board

29 Directors' Report 30 Annual Report 2019-20

Annexure - I successful corporate citizen of the country, maintaining highest standards of corporate governance with the cooperation and Corporate Social Responsibility Report involvement of its employees, constituents, society, shareholders and Corporate Social Responsibility (CSR) has been an inherited & inbuilt other stakeholders including the Government. element of our fundamentals - right from the day the Bank was The Bank would be ensuring that the activities are undertaken in a founded. Our founder’s values & ethos based on trust got embedded manner that every rupee spent for this purpose will ultimately bring in the Bank’s policies & principles. CSR in Federal Bank began with maximum relief to the intended beneficiaries, and thereby contribute the first act of cultivating banking habits in the agrarian society – to to the long term development of the society. The Bank aims to do this effectively utilize idle money for productive purposes. by engaging in activities that provide socially and environmentally 1. A brief outline of the company’s CSR policy, including overview of sustainable benefits for the beneficiaries, measurable in economic projects or programs undertaken and a reference to the web-link to terms. This would demonstrate the social commitment of the Bank, the CSR Policy and Projects or Programs. in the same manner as it services the interest of the customers, Policy on Corporate Social Responsibility 2019-20 employees and shareholders, integrating the social and business goals. Introduction CSR Through Employee Volunteering For us in Federal Bank, reaching out to people who needs assistance is part of the values passed by our founder. The objectives we intend Bank ensures employee engagement and encourages employee to achieve through CSR programs aims at developing communities involvement in the social responsibility activities of the Bank through and environment sustainability to create a protected future for the various programmes every year. Bank budgets a specific amount generations to come. The Corporate Social Responsibility activities under Employee Volunteering and the same would be reached out of the Bank touches a wider footprint through areas like Health, to the needy through well planned team activities. Education, Women empowerment, Environment sustainability, and The activities will be only carried out in India, in areas of operation other activities permitted by the Schedule VII of the Companies Act, of the Bank. 2013. CSR Initiatives covered by the Policy Objectives of CSR In accordance with the corporate philosophy outlined above, and the • To make meaningful contribution for the improvement of those frame work of the Act as amended from to time, the thrust areas of lying at the bottom of social pyramid and thereby act as socially CSR activities of the bank would be: conscious, well governed and successful corporate citizen of the 1. Poverty Alleviation: Eradicating hunger, poverty, and country. malnutrition; Providing safe drinking water, Housing to • To ensure that the activities undertaken will bring maximum economically backward sections of society; Healthcare including relief to the intended beneficiaries and thereby contribute to the preventive healthcare and Trauma-care in high-ways; Improved long term development of the society, by providing socially and sanitation and hygiene and other measures for reducing environmentally sustainable benefits, measurable in economic inequalities faced by socially economically backward sections terms, demonstrating the social commitment of the Bank in of society including contribution to funds set up by central the same manner it services the customers, employees and Government for promotion of sanitation. shareholders. 2. Education and skill development: Promoting education in- cluding Special Education and vocational education including Legal Framework of CSR Policy skill development for children, women elderly and differently Section 135 of the Companies Act, 2013 (hereinafter referred to as abled and livelihood enhancement projects and other activities the Act), effective from April 01, 2014, read with the Companies within the overall objective of promoting education. (Corporate Social Responsibility Policy) Rules 2014, as amended from 3. Gender equality and welfare of Senior citizens: time to time, lays down the legal framework for the Bank’s CSR Undertaking activities for gender equality including but not policy, guided by the core values of quality, reliability and trust, and limited for empowerment of women, self-help groups and passion for excellence pursued by the Bank at all levels. similar organizations; setting up homes and hostels women and Corporate Vision and objective of the Policy orphans; setting up old age homes, day care centres and such other facilities for Senior citizens. The Bank desires to make a meaningful contribution for the improvement of those people who are at the bottom of the social 4. Ensuring Environmental Sustainability and Ecological pyramid, and thereby act as socially conscious, well governed and Balance: Undertaking activities with the overall objective of

31 Directors' Report ensuring environmental sustainability and ecological balance; • Support to Swatch Bharat Mission protection of flora and fauna; animal welfare; Agro-forestry: The detailed policy on CSR of the Bank is published in the Bank’s conservation of natural resources including maintaining quality website, www.federalbank.co.in. of soil, air and water; renewable energy and other activities within this overall objective of environmental sustainability 2. The Composition of the CSR Committee including contributions to funds set up Central Government re- As on March 31, 2020, CSR Committee consists of: juvenation of river Ganga. • Mr. K Balakrishnan (Chairman) 5. Protection of National Heritage: Providing protection of • Mr. A. P Hota (Independent Director) national heritage, art and culture including restoration of build- • Mr. Shyam Srinivasan (Managing Director & Chief Executive Officer) ings and sites of historical importance and works of art, setting up public libraries; promotion and development of traditional • Mr. Ashutosh Khajuria (Executive Director) arts and handicrafts. 3. Average net profit before tax of the Company for the last 6. Benefit of Armed Forces Veterans: Taking up projects or ac- three financial years tivities intended for providing benefit of armed forces veterans, CSR Allocation war widows and their dependents. PBT ` (in crores) 7. Promote Rural, Nationally Recognized, Paralympic and Olympic Sports by supporting training for attaining excellence PBT for the FY '19 1,907.25 in all areas of sports. PBT for the FY '18 1,343.86 8. Contribution to the Prime Ministers National Relief Fund PBT for the FY '17 1,306.50 or and other Funds set up by the Central Government for Average PBT 1519.20 socio economic development and relief and welfare of the CSR Allocation FY 2019-20 30.38 scheduled castes, the scheduled tribes, other backward classes, minorities and women. 4. Prescribed CSR Expenditure (two per cent of the amount as in Item 3 above) 9. Providing financial assistance to Technology Incubators, `30.38 Crores located within academic institutions duly approved by the Central Government for this purpose. 5.Unspent Portion 10. Development Projects for rural areas and areas declared by The amount to be spent by the Bank towards CSR for FY 2019-20 as Government as slum areas. per Section 135 of the Companies Act, 2013 is `30.38 Crores. 11. Prevention of Child Abuse and Child Labour to ensure edu- With respect to FY 2015-16, the prescribed CSR allocation was cation for all kids and providing them facilities/support to the `26.18 Crores, while actual spent was `12.30 Crores. Ministry of families to help them sending kids to the schools and thereby Corporate Affairs (MCA), vide letter dated 16.04.2018, instructed prevent child abuse & child labour. Bank to submit clarifications in this regard. In response to Bank’s 12. Support to Swatch Bharat Mission by constructing toilets clarifications vide letter dated 02.05.2018 & 27.02.2019, MCA vide for the poor, e-toilets at public places, support for re-cycling of letter dated 17th July 2019 bearing ref. F. No. 20(P)/01/2018-CSR plastic, e-waste etc. ordered for a personal hearing with the representatives of the Federal 13. Promotion of Digitization: In line with the Government of Bank, to demonstrate Bank’s compliance with the provisions of Cor- India’s move towards higher digitization, with focus digitization porate Social Responsibility under Companies Act, 2013 read with in rural and semi urban areas. rules framed there under (the Act) for the Financial Year 2015-16. The above objectives are broad based, and will be construed in a In furtherance of the above, Bank had a personal hearing at MCA liberal manner within the framework of the Act. offices on August 08, 2019 wherein MCA had permitted the Bank Core CSR activities for the Financial Year 2019-20 were as follows; to utilize the unspent amount of CSR contribution for FY 2015-16 amounting to `13.88 Crores (“Unspent Amount”), within a period • Youth engagement of six (6) months and permitted to utilize the unspent amount • Education through the Federal Bank Hormis Memorial Foundation (trust). • Promoting Vocational Skills Further, Bank had transferred the Unspent Amount of `13.88 Crores • Healthcare to the Trust, special purpose vehicle carrying out the Bank’s CSR • Women empowerment activities. • Digitization

32 Annual Report 2019-20

Hence, total CSR funds for FY 2019-20 are structured as `42.40 Crores. This includes the amount set aside totalling to follows: `9.98 Crores for on-going projects which are partially completed/ CSR mandatory allocation for FY 2019-20 `30.38 Crores delayed/postponed in the wake of Covid 19 and subsequent Unspent Portion of FY 2015-16 `13.88 Crores lockdown in the country. The Bank had transferred `9.98 Crores Total `44.26 Crores to Federal Bank Hormis Memorial Foundation Account which will be utilized for the approved projects. The Bank confirm that the unspent portion pertaining to the year 2015-16 were spent during FY 2019-20 for projects which are in Through various projects which are already sanctioned, Bank will be consonance with activities specified in Schedule VII of the Companies thoughtfully spending the CSR funds earmarked for the purpose. The Act, 2013 (the Act) and are accordingly, in compliance with the ratio adopted was 80:20, wherein 80% of the CSR funds will be relevant provisions of the Act. The Bank has also obtained relevant utilized for long term sustainable projects and 20 % of the funds internal approvals, as required, for the purposes of sanctioning the will be utilized to meet location specific requests. The Bank had also utilisation of the Unspent Amount in the manner envisaged under embarked on some major projects last year in the field of education, the Plan. Youth engagement, skill development, support to differently abled etc. By choosing long term sustainable projects, Bank has taken an Total amount spent by the Bank in FY 2019-20 towards CSR was approach which brings steady and long lasting impact on the society. Details of CSR spent during the financial year 2019-20

(1) (2) (3) (4) (5) (6) (7) (8) Sl.No CSR project or Sector in which the Projects or pro- Amount Amount spent Cumulative Amount activity identified project is covered grams (1) Local outlay on the projects expenditure up Spent direct area or other (budget) or programs to the report- or through (2) Specify pro- Sub heads: ing period implementing the State and ject or (1) Direct (` in lakhs) agency district where program expenditure (` in lakhs) projects or wise on projects or programs was (` in programs undertaken lakhs) (2) Overheads (` in lakhs) 1 Promoting Education, Direct-100.83 Education, & Skill Vocational Skills, Youth Pan India 2365 2034.28 5844.01 Implementing Building Engagement agency- 1933.45 2 Scholarships through Federal Kerala, Tamil Bank Hormis Promoting Education 227 197.38 851.20 Direct Nadu, Memorial Foundation 3 Direct-119.48 Health Care & Health care, Preventive Pan India 470 499.90 878.64 Implementing Safety Health care agency-380.42 4 Welfare, Poverty Directly Alleviation Eradicating hunger, Poverty, by the Bank . Pan India 550 544.02 698.32 & Women Setting up Homes As given in empowerment column (6) 5 Direct-77.03 Environment Sustainability/ Environment Conservation Pan India 122 148.39 369.00 Implementing Swachh Bharat agency-71.36 6 Rural & Social Development, Rural Development Pan India 350 106.49 443.73 Direct welfare of SC/ST 7 Disaster Flood Relief, Covid-19 Pan India 557.25 586.56 586.56 Direct Management 8 Direct-2.60 Promotion of Sports, Culture, Sports & Culture Pan India 136.10 105.60 105.60 Implementing Traditional Arts agency-103.00

9 Office Expenses, Salary paid Miscellaneous 12 17.17 37.13 Direct to Head CSR Total 4789.35 4239.79 9814.19

33 Directors' Report Implementing agency details Programme for students to 3 more states viz., Gujarat, West Bengal 1. Education & Skill Building-Times of India, Dainik Bhaskar, & New Delhi in addition to the exisiting 4 states of Kerala, Karnakata, Mathrubhumi Printing & Publishing Co, Hindustan Times, SB Maharashtra & Tamilnadau.The initiative gave a platform for many Global Educational Resources Pvt Ltd, SOS Childrens Village, students to develop their communication skills and confidence levels. Malayala Manorama Printing & Publishing Co Ltd, Petals Globe Bank started the Federal Skill Academy at Ernakulum, Coimbatore, Foundation, K P Hormis Charitable Society, Light of Life Trust, Kolhapur & Karnal aimed at up skilling hundreds of youth in Drshtikona Consultancy & Programme Management Services Pvt alignment with the Skill India Mission of the Government. In line with Ltd. our commitment to conserve environment and natural resources we 2. Healthcare & Safety- Raksha Society, Sree Chitra Tirunal Institute partnered with Mathrubhumi for the SEED project. Apart from this for Medical Sciences and Technology, Paryas Society (Sansad we also supported several organizations across India who is engaged Mobile Swastya Sewa), Adarsh Charitable Trust, Academy of in Philanthropic/social activities. Our objective remains to associate Magical Sciences, Thrissur Municipal Corporation, Rotary Club with projects that help to uplift the downtrodden and the needy of Aluva, Asian Cancer Foundation, Fourth Wave Foundation. sections in the society and to passionately involve in such activities that bring about obvious positive changes in the society that will 3. Welfare & Poverty Alleviation- Akshaya Patra Foundation, Warrier nurture and nourish the future generations and aim at creating Foundation, Rotary Club Cochin Central, YMCA, Alangad. significant difference in the overall socio-economic development and 4. Environment Sustainability& Swatch Bharat- Mathrubhumi environment sustainability. Printing & Publishing. Co (SEED Programme), Kochi Design Week, Green Storm Foundation. The CSR expenditure for 2019-20 was `28.51 crores as against gross amount required to be spent is of `30.38 crores. In addition 5. Sports & Culture-DC Kizhakkemury Foundation, North East Foot to the above spent, the Bank had also spent `13.88 crores during FY Ball Foundation. 2019-20, the unspent amount of CSR contribution for FY 2015-16. Corporate Social Responsibility is an area that can help, build value The unspent amount of `1.87 Crores pertaining to FY 2019-20 will system among employees and make them feel part of social change. be added to the CSR corpus fund and the same will be spent in the With this objective, the Bank had decided to involve staff members coming years. as part of our employee social responsibility initiatives. As part of The Bank had in its pipeline various CSR projects which are identified this, welfare projects were successfully completed with the active to give sustained support to the society. Our objective through participation of employees pan India on Founder’s Day. Many other corporate social initiatives is to bring out marked difference in the projects were successfully completed with the active participation of upliftment of the society and the world we live in. Bank is passionately employees across the country such as Village Adoption & Digitization involved in such activities that create obvious positive changes in the of four villages (Mankol-Gujarat, Gudha-Haryana, Venmony-Kerala society and will nurture and nourish the future generations. & Mardhala-Karnataka). We have initiated a lot of developmental/ infrastructural activities in all villages, and the culmination of the The CSR Committee confirms that the implementation and programme in Villages Mankol, Gudha & Venmony scheduled in monitoring of CSR Policy is in compliance with CSR objectives and March 2020 had to postpone in the wake of Covid19 outbreak and Policy of the Bank. subsequent declaration of Lockdown. To meet the location specific requests emanating from the field, 20% of the total CSR budget Sd/- Sd/- would be earmarked. Several major projects that can have long term Mr. Shyam Srinivasan Mr. K Balakrishnan impact were selected during the year; some of the major initiatives (Managing Director & Chief Executive Officer) (Chairman, CSR Committee) rolled out during the year were extension of Speak for India Debating

34 Annual Report 2019-20

Annexure – II (a) The Securities and Exchange Board of India (Substantial Acquisi- tion of Shares and Takeovers) Regulations, 2011; FORM NO. MR-3 (b) The Securities and Exchange Board of India (Prohibition of SECRETARIAL AUDIT REPORT Insider Trading) Regulations, 2015;

FOR THE FINANCIAL YEAR ENDED 31.03.2020 (c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; [Pursuant to section 204(1) of the Companies Act, 2013 and Rule No.9 of the Companies (Appointment and Remuneration of (d) The Securities and Exchange Board of India (Share Based Managerial Personnel) Rules, 2014] Employee Benefits) Regulations, 2014; (e) The Securities and Exchange Board of India (Issue and Listing of To, Debt Securities) Regulations, 2008; The Members, (f) The Securities and Exchange Board of India (Registrars to an The Federal Bank Limited Issue and Share Transfer Agents) Regulations, 1993 regarding Federal Towers, P.B No.103 Alwaye, Kerala - 683101 the Companies Act and dealing with client; (g) The Securities and Exchange Board of India (Listing Obligations We, SEP & Associates, Company Secretaries, have conducted the and Disclosure Requirements) Regulations, 2015; Secretarial Audit of the compliance of applicable statutory provisions (h) The Securities and Exchange Board of India (Depositories and and the adherence to good corporate practices by The Federal Bank Participants) Regulations, 2018; Limited (CIN: L65191KL1931PLC000368) (hereinafter called the (i) The Securities and Exchange Board of India (Bankers to the “Bank”). Secretarial Audit was conducted for the financial year ended Issue) Regulations, 1994; on March 31, 2020 in a manner that provided us a reasonable basis (j) The Securities and Exchange Board of India (Foreign Portfolio for evaluating the corporate conducts/statutory compliances and Investors) Regulations, 2014; expressing our opinion thereon. (vi) As informed to us, the following other laws are specifically ap- Based on our verification of the books, papers, minute books, forms plicable to the Bank: and returns filed and other records maintained by the Bank and 1. Reserve Bank of India Act, 1934; also the information provided by the Bank, its officers, agents and authorized representatives during the conduct of secretarial audit, 2. The Banking Regulations Act, 1949 and Rules, Notifications and we hereby report that in our opinion, the Bank has, during the Circulars issued by Reserve Bank of India from time to time; audit period covering the financial year ended on March 31, 2020, 3. The Banking Ombudsman Scheme, 2006; complied with the statutory provisions listed hereunder and also that 4. The Bankers’ Books Evidence Act, 1891; the Bank has proper Board-processes and compliance-mechanism in 5. The Securitisation and Reconstruction of Financial Assets and place to the extent, in the manner and subject to the reporting made Enforcement of Security Interest (SARFAESI) Act, 2002; hereinafter: 6. The Deposit Insurance and Credit Guarantee Corporation Act, We have examined the books, papers, minute books, forms and 1961; returns filed and other records maintained by the Bank forthe 7. Credit information Companies (Regulation) Act, 2005. financial year ended on 31st March 2020, according to the provisions of: We have also examined compliance with the applicable clauses of the following: (i) The Companies Act, 2013 (the Act) and the rules made thereunder; (i) Secretarial Standards 1 and 2 issued by The Institute of Company Secretaries of India; (ii) The Securities Contracts (Regulation) Act, 1956 and the rules made thereunder; (ii) The Listing Agreements entered into by the Bank with Bombay Stock Exchange and National Stock Exchange of India Limited; (iii) The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder; During the period under review, the Bank has complied with the provisions of the Act, Rules, Regulations, Guidelines, Standards, etc. (iv) Foreign Exchange Management Act, 1999 and the rules and mentioned above. regulations made thereunder to the extent of Foreign Direct In- vestment, Overseas Direct Investment and External Commercial During the period under review, provisions of the following Borrowings; regulations were not applicable to the Bank: (v) The following Regulations and Guidelines prescribed under the (i) The Securities and Exchange Board of India (Delisting of Equity Securities and Exchange Board of India Act, 1992:- Shares) Regulations, 2009

35 Directors' Report (ii) The Securities and Exchange Board of India (Buyback of Securi- We further report that during the audit period there were no ties) Regulations, 1998 instances of: We further report that the Board of Directors of the Bank is duly i. Issuance of securities including Public/Right/Preferential issue of constituted with proper balance of Executive Directors, Non-Executive shares other than Equity shares issued under Employee Stock Directors and Independent Directors. The changes in the composition Option Scheme(s) of the Bank and issue of Non-Convertible of the Board of Directors that took place during the period under Debt Securities; review were carried out in compliance with the provisions of the Act. ii. Redemption/Buy-back of securities Adequate notice is given to all directors to schedule the Board iii. Merger/amalgamation/reconstruction; Meetings in compliance with the provisions of Section 173(3) of iv. Foreign technical collaborations. the Companies Act, 2013, agenda and detailed notes on agenda This report is to be read with Annexure A of even date and the same were sent at least seven days in advance and where the same were forms an integral part of this report. given at Shorter Notice than 7 (seven) days, proper consent thereof were obtained and a system exists for seeking and obtaining further For SEP & Associates UDIN: F010085B000283622 information and clarifications on the agenda items before the Company Secretaries meeting and for meaningful participation at the meeting. (ICSI Unique Code: P2019KE075600) Decisions at the meetings of the Board of Directors of the Bank were carried through on the basis of majority and the same was captured Sd/- and recorded as part of the minutes. There were no dissenting views by any member of the Board of Directors during the period under CS EP Madhusudhanan review. Partner We further report that there are adequate systems and processes COP No. 21874, FCS: F10085 in the Bank commensurate with its size and operations of the Bank to monitor and ensure compliance with applicable laws, rules, Date: May 26, 2020 regulations and guidelines. Place: Kochi

36 Annual Report 2019-20

ANNEXURE A TO THE SECRETARIAL AUDIT REPORT OF EVEN DATE

To The Members The Federal Bank Limited Federal Towers, P B No. 103 Alwaye, Ernakulam, Kerala-683101

Our Secretarial Audit Report of even date is to be read along with this letter. 1. The compliance of the provisions of all laws, rules, regulations, standards applicable to The Federal Bank Limited (hereinafter called the “Bank”) is the responsibility of management of the Bank. Our examination was limited to the verification of the records and procedures on test check basis for the purpose of issue of the Secretarial Audit Report. 2. Maintenance of the Secretarial and other records of applicable laws is the responsibility of the management of the Bank. Our responsibil- ity as Secretarial Auditors is to issue Secretarial Audit Report, based on the audit of the relevant record maintained and furnished to us by the Bank, along with explanations where so required. 3. During the audit, we have followed the practices and process as were appropriate, to obtain reasonable assurance about the correctness of the contents of the Secretarial and other records, legal compliance mechanism and corporate conduct. We believe that the process and practices we followed provide a reasonable basis for our Secretarial Audit Report. 4. The correctness and appropriateness of financial records and Books of Accounts of the Bank have not been verified. 5. We have obtained the Management representation about the Compliance of laws, rules and regulations and happening of events etc., wherever required. The Secretarial Audit Report is neither an assurance as to the future viability of the Bank nor of the efficacy or effec- tiveness with which the management as conducted the affairs of the Bank. 6. While forming an opinion on compliance and issuing the Secretarial Audit Report, we have also taken into consideration the compliance related actions taken by the Bank after March 31, 2020 but before issue of the Report. 7. We have considered actions carried out by the Bank based on independent legal/professional opinion as being in compliance with law, wherever there was scope for multiple interpretations.

For SEP & Associates UDIN: F010085B000283622 Company Secretaries (ICSI Unique Code: P2019KE075600) Sd/-

CS EP Madhusudhanan Partner COP No. 21874, FCS: F10085

Place: Kochi Date: May 26, 2020

37 Directors' Report Annexure III Extract of Annual Return as on the financial year ended 31.03.2020 [Pursuant to Section 92(3) of the Companies Act, 2013, and Rule 12(1) of the Companies (Management and Administration) Rules, 2014]

FORM NO. MGT - 9 I. Registration and Other Details CIN L65191KL1931PLC000368 Registration Date April 23, 1931 Name of the Company The Federal Bank Limited Category/Sub-category of the Company Company having Share Capital Non-Government Company Address of the Registered Office Federal Towers, P B No. 103, Aluva, and contact details Ernakulam- 683 101,Tel-0484 2630996 Email: [email protected] Whether Listed company Yes Name address and contact details M/s. Integrated Registry Management Services Private Limited, of Registrar and Transfer Agent 2nd Floor, Kences Towers, No.1, Ramakrishna Street, Off : North Usman Road, T. Nagar, Chennai-600017 Phone No: 044-28140801-03 Email: [email protected]

II. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY All the business activities contributing 10% or more of the total turnover of the company shall be stated:-

Sl. Name and Description of main products / services NIC Code of the Product/ Service % to total turnover of the Bank No

1 Banking services and Financial Services 64191 100%

III.PARTICULARS OF SUBSIDIARY AND ASSOCIATE COMPANIES Sl. Holding /subsidiary/ % of Shares Applicable Name and address of the Company CIN/GLN No associate held Section 1. Fedbank Financial Services Limited U65910KL1995PLC008910 Subsidiary 74.00% 2(87) 2. Federal Operations and Services Limited U74999KL2018PLC055298 Subsidiary 100.00% 2(87) 3 IDBI Federal Life Insurance Company Limited U66010MH2007PLC167164 Associate 26.00% 2(6) 4 Equirus Capital Private Limited U65910MH2007PTC172599 Associate 8.74% 2(6)

38 Annual Report 2019-20

IV. SHAREHOLDING PATTERN (Equity Share Capital Break up as percentage of Total Equity) (i) Category-wise Shareholding

No. of shares held at the beginning of the year No. of shares held at the end of the year % (as on 01.04.2019) (as on 31.03.2020) Change dur- Category of ing the Shareholder % of % of year Demat Physical Total Total Demat Physical Total Total Shares Shares

A SHAREHOLDING OF PRO- MOTER AND PROMOTER GROUP (1) Indian a Individual/Hindu Undivided Family 0 0 0 0 0 0 b Central Government/State Government(s) 0 0 0 0 0 0 c Bodies Corporate 0 0 0 0 0 0 d Financial Institutions/Banks 0 0 0 0 0 0 e Any other(specify) 0 0 0 0 0 0 Sub Total A(1) 0 0 0 0.000 0 0 0 0.000 (2) Foreign a Individual(Non Resident/ Foreign Individuals) 0 0 0 0 0 0 b Bodies corporate 0 0 0 0 0 0 c Institutions 0 0 0 0 0 0 d Any other(specify) 0 0 0 0 0 0 Sub Total A(2) 0 0 0 0.000 0 0 0 0.000 Total Shareholding of promoter and Promoter Group(A)=A(1)+A(2) 0 0 0 0 0 0 B Public Shareholding (1) Institutions a Mutual Funds/UTI 439017853 74750 439092603 22.120 509293259 74750 509368009 25.560 b Financial Institutions/Banks (Including Foreign Banks) 57399630 95500 57495130 2.900 92629865 95500 92725365 4.650 c Central Government/State Government(s) 10 0 10 0.000 510 0 510 0.000 d Venture Capital Funds e Insurance Companies 32566530 0 32566530 1.640 115829747 0 115829747 5.810 f Foreign Institutional Inves- tors 753544738 203500 753748238 37.970 653152713 0 653152713 32.780 g Foreign Venture Capital Investors 0 0 0 0.000 0 0 0 0.000 h Any other(specify) 0 0 0 0.000 0 0 0 0.000 Alternative Investments 7829371 0 7829371 0.390 9543991 0 9543991 0.480

Sub Total B(1) 1290358132 373750 1290731882 65.020 1380450085 170250 1380620335 69.290 4.270

39 Directors' Report No. of shares held at the beginning of the year No. of shares held at the end of the year % (as on 01.04.2019) (as on 31.03.2020) Change dur- Category of ing the Shareholder % of % of year Demat Physical Total Total Demat Physical Total Total Shares Shares (2) Non-Institutions a Bodies Corporate 86157438 289320 86446758 4.350 23002208 284180 23286388 1.170 b Individuals(Resident/NRI/ Foreign National) 0 0 0 0.000 0 0 0 0.000 (i) Individual shareholders holding Nominal share Capital upto `1 Lakh 286304046 21330869 307634915 15.500 275270502 18533889 293804391 14.740 (ii) Individual shareholders holding Nominal share Capital above `1 Lakh 232064700 1833020 233897720 11.780 224896499 1551040 226447539 11.360 c Any other(specify) a Limited Liability Partnership 4388427 0 4388427 0.220 3274470 0 3274470 0.160 b Trust 8094021 58800 8152821 0.410 9559239 58800 9618039 0.480 c Investor Education and Protection Fund 5680842 0 5680842 0.290 5956062 0 5956062 0.300 d Foreign Body Corporate 0 0 0 0.000 1067452 0 1067452 0.050 e Clearing Member 10269951 0 10269951 0.520 15295843 0 15295843 0.770 f Directors 8568595 0 8568595 0.430 1088595 0 1088595 0.050 g Foreign National / QFI 4617 0 4617 0.000 0 0 0 0.000 Foreign Portfolio Investor h Individual Cat-3 0 0 0 0.000 1396 0 1396 0.000 Foreign Portfolio Investor i Corporate Cat-3 0 0 0 0.000 2100 0 2100 0.000 Foreign Institutional j Investors 0 0 0 0.000 0 203500 203500 0.010 k Association of Persons 0 0 0 0.000 920 0 920 0.000 l NBFC's Registered with RBI 0 0 0 0.000 194901 0 194901 0.010

Sub Total B(2) 641532637 23512009 665044646 33.500 559610187 20631409 580241596 29.10 -4.400 Total Public Share Holding (B)=B(1)+B(2) 1931890769 23885759 1955776528 98.530 1939860955 20598159 1960459114 98.380 -0.150

Total (A)+(B) 1931890769 23885759 1955776528 98.530 1940060272 20801659 1960861931 98.400 Shares held by Custodians C for GDRs and ADRs 29273675 0 29273675 1.470 31802641 0 31802641 1.600 0.130

Grand Total (A)+(B)+(C) 1961164444 23885759 1985050203 100.000 1971862913 20801659 1992664572 100.000 0.000

40 Annual Report 2019-20

(ii) Shareholding of Promoters Sl Shareholding at the beginning of the year Shareholding at the end of the year % change in No. shareholding during the year Shareholders Name No. of shares % of total %of shares No. of shares % of total %of shares shares of the pledged / shares of the pledged / en- company encumbered to company cumbered to total shares total shares

NIL

(iii) Change in Promoters Shareholding Sl Shareholding Cumulative Shareholding No. at the beginning of the year during the year No. of shares % of total shares No. of shares % of total shares of of the company the company At the beginning of the year Date wise Increase/ Decrease in Shareholding during the year specifying the reasons for increase / decrease (e.g. allotment /transfer/ bonus/ sweat NIL equity etc): At the End of the year

(iv) Shareholding Pattern of Top Ten Shareholders (other than Directors, Promoters and Holders of GDRs and ADRs) Shareholding at the beginning of the year Shareholding at the end of the year Sl April 01, 2019 March 31, 2020 For Each of the Top 10 Shareholders No. % of total shares of % of total shares No. of shares No. of shares the company of the company 1 ICICI Prudential 80051471 4.017 94934066 4.764 2 Life Insurance Corporation of India 45799910 2.298 90406887 4.537 3 Yusuffali Musaliam Veettil Abdul Kader 74828640 3.755 77600640 3.894 4 Reliance Capital Trustee Co Ltd 70083976 3.517 69773482 3.502 5 HDFC Trustee Company Ltd 57758817 2.899 68052817 3.415 6 Rakesh Jhunjhunwala 44721060 2.244 60321060 3.027 7 HDFC Life Insurance Company Limited 31052248 1.558 56664091 2.844 8 East Bridge Capital Master Fund Limited 48345447 2.426 48345447 2.426 9 Fidelity Investment Trust 34320594 1.722 43436094 2.180 10 East Bridge Capital Master Fund I Ltd 37729342 1.893 37729342 1.893

Note: 1. The shares of the Bank are substantially held in dematerialized form, and are traded on a daily basis and hence the date wise increase/decrease in shareholding is not indicated. 2. The top ten shareholders after consolidation of shares held by the institutions/individuals based on the PAN, as on March 31, 2020 is considered for the above purpose.

41 Directors' Report V.Shareholding of Directors and Key Managerial Personnel

Shareholding at the beginning Cumulative Shareholding during of the year the year For Each of the Directors and KMP % of total % of total No. of shares shares of the No. of shares shares of the company company Mr. Shyam Srinivasan Managing Director and Chief Executive Officer Shareholding at the beginning of the year (as on 01.04.2019) 8208595 0.412 Decrease (Sale of shares on 09.03.2020)* 4500000 0.226 3708595 0.186 Decrease (Sale of shares on 13.03.2020)* 1000000 0.050 2708595 0.136 Decrease (Sale of shares on 24.03.2020)* 1910000 0.096 798595 0.040 Shareholding at the end of the year (as on 31.03.2020) 798595 0.040 Mr. Ashutosh Khajuria Executive Director & Chief Financial Officer Shareholding at the beginning of the year (as on 01.04.2019) 322000 0.016 Decrease (Sale of shares on 15.05.2019) 100000 0.005 222000 0.011 Increase (Purchase of ESOS shares on 11.11.2019) 100000 0.005 322000 0.016 Decrease (Sale of shares on 02.12.2019) 70000 0.001 252000 0.013 Shareholding at the end of the year (as on 31.03.2020) 252000 0.013 Mr. Krishnamurthy Balakrishnan Independent Director Shareholding at the beginning of the year (as on 01.04.2019) 38000 0.002 Increase (Purchase of shares) 22500 0.001 Shareholding at the end of the year (as on 31.03.2020) 60500 0.003 Mr. Girish Kumar G Company Secretary & Compliance Officer (Retired on 30.11.2019)

Shareholding at the beginning of the year (as on 01.04.2019) 21890 0.001 Increase (Purchase of shares on 10.05.2019) 2000 0.000 23890 0.001 Decrease (Sale on 24.05.2019) -2250 0.000 21640 0.001 Decrease (Sale on 31.05.2019) -1200 0.000 20440 0.001 Decrease (Sale on 28.06.2019) -2000 0.000 18440 0.001 Shareholding at the end of the year (as on 31.03.2020) 18440 0.001 * The sale of shares was triggered as a consequence of the margin calls on the loans taken for the purchase of shares under ESOS as intimated to the Stock Exchanges on March 13, 2020 and March 24, 2020 in respect of the said sale of 55,00,000 (45,00,000 & 10,00,000) and 19,10,000 shares respectively.

NOTE 1. None of the Non-Executive Independent Directors of the Bank hold shares of the Bank as at beginning and at end of the year except Mr. K Balakrishnan who holds 60,500 shares as on March 31, 2020. 2. For purchase on account of ESOS, the date of allotment is considered.

42 Annual Report 2019-20

VI. INDEBTEDNESS

Indebtedness of the Company including interest outstanding / accrued but not due for payment (` in Crore) Secured Loans Total Unsecured Loans excluding deposits Indebtedness Indebtedness at the beginning of the financial year i) Principal Amount 4,918.22 747.12 5,665.34 ii) Interest due but not paid - - - iii) Interest accrued but not due 1.18 41.83 43.01 Total (i+ ii+ iii) 4,919.40 788.95 5,708.35 Change in Indebtedness during the financial year • Addition 339,811.18 64,209.81 404,020.99 • Reduction 336,937.48 64,458.33 401,395.81 Net Change 2,873.70 -248.52 2,625.18 Indebtedness at the end of the financial year i) Principal Amount 7,791.92 498.60 8,290.52 ii) Interest due but not paid - - - iii) Interest accrued but not due 31.00 0.00 31.00 Total (i+ii+iii) 7,822.92 498.60 8,321.52

VII. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL A.Remuneration to Managing Director, Whole – time Directors and / or Manager Sl. Name of MD/WTD/Manager No Total Amount Particulars of Remuneration Mr.Shyam Mr. Ashutosh Ms. Shalini Srinivasan Khajuria Warrier (in `) (MD & CEO) (ED & CFO) (ED & COO) 1. Gross salary (a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961 1,51,33,333 24,18,819 23,47,047 1,98,99,199 (b) Value of perquisites u/s 17(2) Income-tax Act, 1961 17,79,049 12,54,413 6,99,600 37,33,062 (c) Profits in lieu of salary under section 17(3) Income-tax Act, 1961 2. Stock Option (perquisite value of ESOS) - 35,92,500 - 35,92,500 3. Sweat Equity NIL NIL NIL NIL 4 Leave Encashment 10,00,000 5,66,667 6,66,667 22,33,334 5 Leave Travel Concession 7,48,233 4,00,000 4,00,000 15,48,233 6. Commission As % of profit Others, specify… NIL NIL NIL NIL 7 Others (PLI) 40,00,000 22,00,000 16,00,000 78,00,000 8 Personal Fixed pay - 51,85,484 49,10,753 1,00,96,236 Total (A) 2,26,60,615 1,56,17,883 1,06,24,067 4,89,02,564 Ceiling as per the Act NA NA NA NA

43 Directors' Report B. Remuneration to other Directors

Sl. Particulars Total No of Remuner- Name of Directors Amount ation (in `)

Mr. K Mr. Mr. Mr. Mr. Dilip CA. Nilesh Ms. Grace Ms. Shubha Mr. C Mr. A P Bala Siddartha Manoj Sudarshan Sadarangani Vikamsey Koshie lakshmi Panse Balagopal Hota krishnan Sengupta Fadnis Sen

1 ependent Directors Fee for attend- 1050000 830000 2350000 2100000 1475000 1895000 1365000 1630000 1390000 240000 14325000 ing board and committee meetings

Commission 750000 750000 750000 750000 750000 750000 386301 - - - 4886301

Others, please specify

(Remunera- 614384 - 720000 ------1334384 tion with RBI approval)

Total (1) 2414384 1580000 3820000 2850000 2225000 2645000 1751301 1630000 1390000 240000 20545685

Sweat Equity

2 Other Non – Executive NIL Directors

Fee for at- tending board committee meetings

Commission

Others, please specify

Total (2) NA

Total (B) = (1+2) 2414384 1580000 3820000 2850000 2225000 2645000 1751301 1630000 1390000 240000 20545685 Total Managerial Remuneration (A+B ) 69448249

Overall Ceiling NA as per the Act

C. Remuneration to Key Managerial Personnel other than MD/ MANAGER/ WTD

Sl. Particulars of Remuneration Name of Key Managerial Personnel Total Amount No Mr. Girish Kumar Mr. Samir P Rajdev Ganapathy (SVP cum (VP & Company Secretary)1 Company Secretary)2 1. Gross salary a) Salary as per provisions contained in section 17(1) of the Income-tax Act, 1961 32,45,211 39,90,736 72,35,947 b) Value of perquisites u/s 17(2) Income-tax Act, 1961 32,400 90,600 1,23,000 c) Profits in lieu of salary under section 17(3) Income-tax Act, 1961 - - -

2. Stock Option (perquisite value of ESOS) - 70,000 70,000

3. Sweat Equity - - -

4 Leave Travel Concession - 2,00,000 2,00,000.00 5 Leave Encashment - 13,03,008 13,03,008 6. Commission (as % of profit) - - - 7. Others , please specify Performance Linked Incentive 1,00,000 5,25,000 6,25,000 Total 33,77,611 61,79,344 95,56,955 1 Mr. Samir P Rajdev appointed as the Company Secretary and Compliance Officer of the Bank w.e.f December 01, 2019 2 Mr. Girish Kumar Ganapathy retired from the post of Company Secretary and Compliance Officer of the Bank w.e.f. November 30, 2019

44 Annual Report 2019-20

VIII. Penalties / Punishment / Compounding of offences: Section of the Details of penalties / Authority (RD / NCLT / Appeal made, if Type Brief description Companies Act punishment / compounding Court) any (give details) fees imposed A. Company Penalty Punishment None Compounding B. Directors Penalty Punishment None Compounding C. Other Officers in default Penalty Punishment None Compounding

45 Directors' Report Annexure IV i) The bank should comply with the provisions of Sections 15 and 17 of the Banking Regulation Act, 1949. DIVIDEND DISTRIBUTION POLICY ii) The bank should comply with the prevailing regulations/ guide- I. OBJECTIVE: lines issued by RBI, including creating adequate provisions for Securities and Exchange Board of India (SEBI) has, on July 08, 2016, impairment of assets and staff retirement benefits, transfer of notified the SEBI (Listing Obligations and Disclosure Requirements) profits to Statutory Reserves etc. (Second Amendment) Regulations, 2016. Through this notification, iii) The proposed dividend should be payable out of the current SEBI has inserted Regulation 43A after Regulation 43 of SEBI (Listing year's profit. Obligations and Disclosure Requirements) Regulations, 2015 {SEBI iv) The Reserve Bank has not placed any explicit restrictions on the (LODR) Regulations}. As per the regulation, the top five hundred bank for declaration of dividends. listed entities based on market capitalization, as on March 31 of every financial year, are required to formulate a Dividend Distribution 4. Quantum of Dividend Payable: Policy which should be disclosed in their annual reports and on their The Bank, if it fulfils the eligibility criteria set out at paragraph No.3 website. above, may declare and pay dividends subject to the following: In terms of Regulation 43A of SEBI (LODR) Regulations, it is manda- i) The dividend payout ratio shall not exceed 40 % and shall be as tory for the Bank to frame the Dividend Distribution Policy, as it falls per the matrix furnished in Annexure. within the top 500 listed entities as on March 31, 2019 in terms of [Dividend payout ratio shall be calculated as a percentage of market capitalization. Accordingly, the following ‘Dividend Distribu- ‘dividend payable in a year’ (excluding dividend tax) to ‘net tion Policy’ has been framed, approved and adopted by the Board of profit during the year’.] Directors of the Bank. ii) In case the profit for the relevant period includes any extra-or- II. POLICY: dinary profits/ income, the payout ratio shall be computed after excluding such extra-ordinary items for reckoning compliance 1. The Policy will be called as `Federal Bank Dividend with the prudential payout ratio. Distribution Policy’. iii) The financial statements pertaining to the financial year for 2. General Principles of the Bank Regarding Distribution of Dividend which the bank is declaring a dividend should be free of any qualifications by the statutory auditors, which have an adverse The intent of the Bank is to reward the shareholders of the Bank by bearing on the profit during that year. In case of any qualifica- sharing a portion of the profits, whilst also ensuring that sufficient tion to that effect, the net profit should be suitably adjusted funds are retained for growth of the Bank. The dividend for each while computing the dividend payout ratio. year would be recommended by the Board at its discretion within the set guidelines of Government and Reserve Bank of India and after 5. Interim Dividend taking into account the financial performance of the Bank, its future Bank may also declare and pay interim dividends out of the relevant plans, internal and external factors, compliance with Companies Act, accounting period’s profit without prior approval of RBI if the 2013 and its rules, statutory restrictions, etc, for approval by the minimum criteria prescribed in paragraph 3 above and the other shareholders in General Meeting. requirements prescribed in paragraph 4 above are satisfied, and 3. Eligibility Criteria for Declaration of Dividend the cumulative interim dividend(s) are within the prudential cap on dividend payout ratio prescribed by RBI, computed for the relevant As per the guidelines (DBOD.NO.BP.BC.88/ 21.02.067/2004-05 accounting period. However, declaration and payment of interim dated May 04, 2005), issued by Reserve Bank of India, Bank will be dividends beyond this ceiling requires RBI's prior approval. eligible to declare dividends only when it complies with the following minimum prudential requirements: 6. Board Oversight The bank should have: The interests of all stakeholders and the following aspects shall be • CRAR of at least 9% for preceding two completed years and the taken into account while deciding on the proposals for declaring accounting year for which it proposes to declare dividend. dividend: • Net NPA less than 7%. a) The interim dividend paid, if any; In case any bank does not meet the above CRAR norm, but is b) The Risk Based Supervision findings of Reserve Bank of India having a CRAR of with regard to divergence in identification of NPAs, shortfall in provisioning; at least 9% for the accounting year for which it proposes to declare dividend, would be eligible to declare dividend provided c) The auditors’ qualification pertaining to the statement of its Net NPA ratio is less than 5%. accounts;

46 Annual Report 2019-20

d) The Basel III capital requirements; and growth plans, future capital requirements etc. The decision of the e) The Bank’s long term growth plans. Board regarding dividend shall be final. The dividend payout decision of the Bank will also depend on certain 7. Other parameters in terms of Regulation 43A of SEBI (LODR) Regulations: external factors such as the state of the economy of the country, compliance with Companies Act, 2013 and its rules, other statutory a) The circumstances under which the shareholders of the listed enti- and regulatory provisions, shareholder expectations including ties may or may not expect dividend individual shareholders, tax regulations including the treatment of The Board of the Bank may not recommend any dividend in the deferred tax assets etc. as may be applicable at the time of declaration event of inadequacy of profits or whenever the Bank has incurred of the dividend. losses or if the eligibility criteria for recommendation of dividend has not been met by the Bank, including any regulatory d) Policy as to how the retained earnings shall be utilized restriction placed on the Bank on declaration of dividend or if the The retained earnings will mainly be utilized for the purpose of the Board strongly believes the need to conserve capital for growth or for Bank’s growth plans, improvement in CRAR and such other purposes other exigencies. as per the guidelines issued by RBI and Government of India from time to time. b) The financial parameters that shall be considered while declaring dividend. e) Parameters that shall be adopted with regard to various classes of The Board of Directors of the Company would consider the following shares: financial parameters before declaring or recommending dividend to Presently authorized share capital of the Bank comprises of Equity shareholders: Shares only. As and when the Bank issues other kind of shares, the • Any interim dividend paid. Board of Directors may suitably amend this Policy. • Internal capital planning framework / policy. 8. Review of Policy • Dividend payout trends (the dividend payout ratio will be calculated as a percentage of dividend (excluding dividend tax) The Board of Directors of the Bank will review the policy annually. recommended for the year to the net profit for that year). If the Board proposes to declare dividend on the basis of criteria in addition to those specified in the policy, or proposes to modify the • Tax implications if any, on distribution of dividends. criteria, it shall disclose such changes along with the rationale for the • Cost of raising funds from alternate sources of capital. same on the Bank’s website and in the Annual Report. • Such other factors and/or material events which the Bank’s 9. Disclosure of Policy Board may consider relevant. The policy will be available on the Bank’s website and will also be c) Internal and external factors that shall be considered for disclosed in the Bank’s Annual Report. declaration of dividend Board will take into account various internal factors, such as business

Annexure Matrix of Criteria as laid out by RBI for maximum permissible range of Dividend Payout Ratio (As per RBI Circular No. RBI/2004-05/451; DBOD.NO.BP.BC. 88 /21.02.067/2004-05 dated May 04, 2005)

Net NPA Ratio More than zero but From 3 % to less From 5% to less Category CRAR Zero less than 3% than 5% than 7 % Range of Dividend Payout Ratio A 11% or more for each of the last 3 years Up to 40 Up to 35 Up to 25 Up to 15 B 10% or more for each of the last 3 years Up to 35 Up to 30 Up to 20 Up to 10 C 9% or more for each of the last 3 years Up to 30 Up to 25 Up to 15 Up to 5 D 9% or more in the Current year Up to 10 Up to 5 Nil

47 Directors' Report Annexure V

The ratio of the remuneration of each director to the median employee’s remuneration and other details in terms of sub- section 12 of Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

Sr. Requirements Disclosure No 1. The Ratio of Remuneration of each Director Mr. Shyam Srinivasan, MD & CEO - 28.40 to the Median Remuneration of Employees Mr. Ashutosh Khajuria, ED & CFO - 15.07 for the Financial Year Ms. Shalini Warrier, ED - 1 2. The percentage increase in remuneration Mr. Shyam Srinivasan, MD & CEO - 68.19% of each director (MD/ED), Chief Financial Mr. Ashutosh Khajuria, ED & CFO - 35.63% Officer, Chief Executive Officer, Company Ms. Shalini Warrier, ED - 1 Secretary or Manager, if any, in the finan- 2 cial year Mr. Girish Kumar Ganapathy, SVP & CS - 3. The percentage increase in the median 9.07% remuneration of employees in the financial year. 4. The number of permanent employees on 12,496 the rolls of company 5. Average percentile increase already made Average percentage increase made in the salary of employees other than the Key in the salaries of employees other than the Managerial Personnels for the Financial Year 2019-20 was 9.07%. managerial personnel in the last financial Remuneration of MD & CEO and ED & CFO were revised in FY 2019-20 as per the year and its comparison with the percentile approval from RBI. increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration 6. The key parameters for any variable com- The variable compensation for Managing Director & CEO and WTD’s to be fixed based ponent of remuneration availed by the on organizational performance and KPAs set for the official. The organization’s per- directors formance is charted based on the Performance Scorecard which takes into account various financial indicators like revenue earned, cost deployed, profit earned, NPA position and other intangible factors like leadership and employee development. Variable pay will be paid purely based on performance and is measured through Score Cards for Managing Director & CEO / WTDs. The Score Card provides a mix of Financial and Non-Financial, Quantitative and Qualitative Metrics. KPAs to contain targets on Risk Adjusted Metrics such as RAROC, RARORAC, in addition to target on NPAs. While considering/ recommending the variable pay in respect of Managing Director & CEO and Whole Time Directors, serious supervisory observations (if any) shall be factored, which will be ensured through suitable processes. 7. Affirmation that the remuneration is as per Yes, it is confirmed. the remuneration policy of the Bank 1Ms. Shalini Warrier was appointed as Executive Director of the Bank with effect from January 15, 2020. Since the remuneration in capacity as Executive Director is only for a part of the year, the ratio of her remuneration to median remuneration and percentage increase in remuneration are not included. 2Mr. Girish Kumar Ganapathy, SVP & CS, retired from the services of the Bank on November 30, 2019. Since the remuneration is only for a part of the year, percentage increase in his remuneration is not included. Further, Mr. Samir P Rajdev was appointed as the Company Secretary of the Bank with effect from December 01, 2019. Since the remuneration is only for a part of the year, percentage increase in his remuneration is also not included. Note: All confirmed employees as on March 31, 2020 have been considered. 48 Annual Report 2019-20

49 Management Discussion & Analysis

Global Economic Scenario the Great Depression of the 1930s, leading to a dramatic shrinkage Global economic growth registered 2.9% in 2019 (IMF), the weakest in growth. Reverberations of the recession may last for a few years, if pace since the global financial crisis a decade ago, reflecting a series the pandemic lasts long. It is expected that tight financial conditions of shocks which had common repercussions across boundaries in persist which would, in turn, lead to job losses and insolvency of spite of idiosyncratic factors in different countries. An array of events firms. The swift and substantial economic policy action taken in - trade tensions between US and China, delay in Brexit, an impending many countries to support people and the earliest timeframe within recession on account of global macro-financial conditions, oil market which a vaccine is developed may pin down the shape of recovery to disruptions, geo-political tensions (Iran and North Korea), social be V/U/W or even a convoluted Swoosh type. unrest (Venezuela, Libya and Yemen), country specific risks in large Indian Scenario emerging market economies such as India, Brazil, Russia and Mexico FY 20 started off on an optimistic note with the Government receiving posed significant spillover risk to all major economies around the stronger mandate for the second successive term, which raised globe including advanced economies in Europe and other emerging hopes of continuity in policy and reforms framework. However, the market economies. economy was grappling with slow macro numbers throughout the Central Banks across the globe reacted aggressively to the sluggish year. India’s GDP had grown at 5.2% in Q1, 4.4% in Q2, 4.1% in activity by reducing interest rates, which averted a deeper slowdown. Q3 and 3.1% in Q4 aggregating to a growth of 4.2% for the full The measures taken bolstered purchase of non-durable goods and year. The cumulative IIP (Index of Industrial Production) for the period services that supported job creation thus helping the economy to April-March 2019-20 has contracted by 0.7% over the corresponding stay afloat. Concurrently, fears of recession in the US faded away period of the previous year. Trade deficit for the period April-January with the correction in inverted US yield curve. Commodity market 2019-20 reduced to USD 133.27 Billion from USD 163.275 Billion of behaviour was inherently unpredictable induced by geopolitical the corresponding period of the previous year because of reduction risks due to which supply side could not establish a complementary in oil price and reduced demand for imported goods. relationship with demand. Economy was going through a more than anticipated slowdown, The expectation of gradual recovery in global economy or substantial as weakness in the real sector and stress in the financial sector evidence of resisting a full-blown recession has become considerably were acting together to bring down the growth numbers. This muted due to the threat raised by Covid-19. The virus had spread deceleration in the economy was led by a sharp slowdown in gross to more than 200 countries in a very short span of time. Economies fixed capital formation and sluggishness in private final consumption around the globe took time to realise the pandemic nature of the expenditure. A fall in major economic indicators such as industrial disease, for which heavy price is being paid in general. The severity of production, exports, bank credit, tax collections, freight movement, the global pandemic is highly ambiguous, but it is clear that the wider automobiles sales and electricity production in addition to slowing its spread, the more deadly and destructive the virus can become. It global growth and uncertainties emanating from trade conflict were is expected to play a decisive role in moulding the future of global pointing towards an inarguable slackening of growth. economy. The greater the odds of a global downturn, anticipated The economy was facing an increasing propensity to save and a economic downturn could be deeper and the subsequent recovery decreasing propensity to invest especially by private corporates, could be weaker reflecting the devastation inflicted by the pandemic. which forced the Government to use fiscal and monetary space to The crisis is unprecedented. The permanent output loss associated keep the economy it moving. Global market volatility and return with the Novel Coronavirus and related containment measures are to safe–haven have undoubtedly influenced Indian markets, which likely to exceed the losses from the Global Financial Crisis 2008-09. have put additional stress on the financial sector that already had There is uncertainty on the duration and intensity of the pandemic constraints in uplifting the economy. If the pandemic does not and no single conventional method of stimulating economic activity subside within the first quarter, the economy may contract in FY21 may be effective to revive the economy. The current situation demands resulting in permanent output loss of `16-25 Trillion or 10%-12% of that the focus be on slowing down the spread of virus, protecting GDP. Unemployment rates which were already at peak are set to rise the precious lives and better preparedness by health care sector. The to nearly 25% from the current stage. Possibilities of an economic Global Economy is expected to experience its worst recession since contraction in FY21 cannot be ruled out in case of uneven health

50 Annual Report 2019-20

recovery and austerity measures prompted by fiscal constraints. The initial blow of an external event briskly translated into a domestic Therefore, it is of utmost priority that Governments at the Centre and dismay, as the Government announced a complete lockdown to curb States need to be extremely zealous through fiscal support to recoup the social spread of the pandemic. Decline in economic activity and the losses by supporting vulnerable firms and restore normalcy in the rise in unemployment due to the pandemic have started leading economy. towards deterioration of household and corporate finance, which can lead to solvency issues for a major number of institutions. Losses Indian Banking Industry through NPA or decline in revenue can affect bottom line of banks, FY20 witnessed tremendous challenges in Indian Banking system which may force capital infusion into PSB’s and Private Sector. Bank because of curtailed credit growth and deterioration in asset credit growth is expected to slow down to 2-3% in Fiscal 2021. quality. The growth in bank credit decelerated in FY20 across all Non-linearity of events and the risk of second wave can drive global major segments including Industry, Non-Food Credit, Agricultural economy towards the deepest recession in decades. The Government and Allied Activities, Services Sector, Textiles and bigger Corporate and RBI are expected to promulgate concrete plans and measures to players as well. Micro & Small Enterprises and Personal Loans were overcome these turbulent times so that the economy weathers from the exceptional segments, which continued to grow at a steady pace the pandemic with limited damages. compared to FY19. Decline in credit growth is mainly imputed to Review of the Bank’s Business Performance the risk aversion of Banks by virtue of continued build-up of NPAs. The IBC mechanism has contributed to reduction in NPA from 11.2 Even though the macro factors stood weak both on global and percent in March 2018 to 9.3 percent in March 2019, but NPA ratio domestic fronts, your Bank delivered a robust operating performance continued to remain at an elevated level of 9.3% in H1 of FY20. with operating profit growth of 16% and net profit growth of 24%. Asset quality of the Bank has improved substantially. To face any The reluctance of Scheduled Commercial Banks to lend to the private unfavourable situation that may arise due to the Covid-19 pandemic, sector was evident going by the amount invested in G-Sec in the the Bank has started increasing the provisions in order to strengthen first eight months of FY20. Investment in G-Sec went up by three the Balance Sheet. times and Private sector lending came down by more than four-fifths compared to the corresponding period of the previous FY. Growth of On the business front, the Bank has achieved robust growth with credit from PSB’s were much lower than that of Private Sector Banks total business crossing ` 2.5 Lakh Cr to reach ` 274558 Cr with a and credit growth rate in PSB’s were on gradually declining trend. growth of 12%. The Bank consistently gained market share during the year. Market Share in credit improved by 5 bps to reach 1.18% NBFC crisis has been a continuing story in FY20 as well. As the NBFCs and market share in deposits improved by 6 bps to reach 1.09%. support 30%-40% of total consumer financing, the liquidity crisis in NBFCs culminated in lower sales of automobiles, dwindling real Liability franchise remained resilient and grew by 13% to reach estate and construction sector, sequentially leading to economic ` 152290 Cr. Retail deposits constitute 90% of total deposits and downturn. NBFCs account for nearly 25% of total lending from Liquidity Coverage Ratio as on 31.03.2020 stood at 196.65%, one of Banking System and Banks are wary of the spillover effects due to the highest amongst Private Sector Banks. CASA registered a growth which they are sceptical to support the sector. The Government may of 7% to reach ` 46450 Cr. The NR business of the Bank witnessed look to introduce new schemes including infusion of long-term funds overall growth of 14% to reach ` 60686 Cr as on 31.03.2020. through players like LIC as the sector is shattered by multiple shocks On the credit side, total credit of your Bank grew by 11% to reach over a period. ` 122268 Cr with robust growth in Retail Loans. Retail portfolio grew In spite of all these developments, the big picture for the Indian by 19% during the year followed by 12% growth in agricultural credit Economy looked assuring as it was going through a transition and 11% growth in business banking credit. Total gold loan grew by phase of cleaning up the financial system to improve and establish a 29% and housing loan grew by 18%. Corporate and Commercial sharpened credit culture. The superior system appeared to improve Portfolios registered a growth of 7% and 5% respectively. the effectiveness of the Banks’ debt recovery mechanism. Reforms like Your Bank has posted highest ever Operating Profit and Net Profit. Insolvency and Bankruptcy Code instil a fear in promoter of losing the Net Profit of your Bank increased by 24% to reach ` 1543 Cr. company unless equity is infused into the firm along with reasonable Operating Profit improved by 16% to reach ` 3205 Cr. Total Income intervention from the Government to complete the recovery process for the year grew by 19% to ` 15142 Cr and Other Income stood at within feasible timelines. All these prospects were impaired by Covid- ` 1931 Cr. Net Interest Margin (NIM) of the Bank stood at 3.05%. 19, which has impelled a long shadow over a much anticipated Your Bank could also clock the highest Net Interest Income at ` 4649 mild recovery of the economy in FY21 with WHO declaring it as a Cr, improved by 11% Y-o-Y. The Net Worth of the Bank increased to pandemic. ` 14518 Cr as on 31.03.2020. The Capital Adequacy Ratio (CRAR) of

51 Management Discussion & Analysis the Bank, computed as per Basel III guidelines stood at a comfortable and Mid-Market Segments. position of 14.35% as on 31.03.2020. Return on Average Assets Opportunities and Threats stood at 0.94% and Return on Equity stood at 11.10%. Cost to Income Ratio of your Bank stood at 51.30% for FY20 against 50.01% The Covid-19 pandemic has brought the world into extremely difficult of FY19. and largely choppy waters. Many countries are facing multi-layered crisis comprising of health shocks, domestic economic disruptions, Gross NPA stood at ` 3531 Cr and Net NPA stood at ` 1607 Cr as on plunging external demand, capital flow reversals and breakdown in 31.03.2020. Gross NPA as a percentage to Gross Advances was at commodity prices. Indian economy has been experiencing significant 2.84% and Net NPA as a percentage to Net Advance was at 1.31%. slowdown over the past few quarters. Investment and consumption PCR (Provision Coverage Ratio) including written off assets improved demand had been languishing and a number of stimulus measures to 72.48%. have been taken to bring back the economy on a growth path. There Business Strategy was a strong hope of recovery in the last quarter of FY20. However, Last decade, in particular, witnessed the Bank gaining material share, the Covid-19 pandemic has made recovery extremely difficult in the both in the Markets and Minds, positioning itself as a prominent near to medium term. The outbreak has presented fresh challenges Banking Player in India. It was choice, and not chance, that drove for the Indian economy, causing severe disruptive impact on both the Bank’s take-off from the status of a regional player, to a bank demand and supply side elements, which has the potential to derail of national and global relevance. Over the years, the Bank made India’s growth story. significant investments in creating an ecosystem that fuelled growth. Even this being the situation, we expect some green shoots in select The Bank established a well-defined business architecture covering micro markets and product segments in the medium term. With full product suites and redefined its business verticals to sharpen the distribution structure future ready, the Bank is fully poised to the growth focus. In addition, a hybrid distribution framework, a embrace and leverage such opportunities. robust credit underwriting architecture and sound risk management Companies that are further along the curve in digitising their practices, brought in requisite fillip to pursue quality and scale. With operations have already benefited from greater built-in resilience Digital taking the centre stage, the Bank could achieve high level during the Covid-19 crisis. The Bank’s thrust on digital driven by of automation thereby improving the overall customer experiences the mantra of ‘Digital at the Fore and Human at the Core’ has while contributing towards cost saves. helped to adapt more rapidly to the digital shift. This includes The Bank is having a comprehensive leadership position in Home leveraging analytics to plan for the post-Covid era and transforming Market (Kerala), covering all segments. The endeavour is to convert more physical processes into digital. The Bank will continue to this commanding Prominence to a complete Dominance. In ‘Rest leverage Data, Digital & Distribution with cost control & robust risk of India’, the Bank will continue to pursue initiatives, which will management practices in the post-Covid era to fuel the growth and enhance the status from Presence to Prominence. Over the next two improve the earnings multiple. to three years, the Bank plans to clock 15-17% of Business CAGR, i.e., In the constant endeavour to instill the inspiring belief that value around 1.5x increase in business. Costs are expected to moderate creation is a continuous journey, the Bank is committed to compliance during this phase. and with ever improving risk management practices, the Bank is fully Going forward, the Bank has visualized an ambitious goal, for it to poised to bring in high quality growth. become second to none. It is to pursue the credo of becoming the “FIRST CHOICE” Bank for all the stakeholders. The vision of being Corporate and Institutional Banking “FIRST CHOICE” is not confined to business growth, but it spreads Corporate and Institutional Banking (CIB) division offers a across the entire range of attributes that concerns a stakeholder, comprehensive suite of banking products and services, both locally be it products, processes, value creation, compliance, controls or and overseas, to Large Business Houses and Corporates, Multinational innovation. It calls for an all new design that can differentiate the entities, Mid & Emerging Corporates, Capital Market clients and numero-uno from the rest of the competition. In the next few years, Financial Institutions in the Public and Private sector. This division of the Bank would, in addition to strengthening the Fundamentals, your Bank offers customized products and services across working strive hard in staying ahead with the best-in-class product offerings, capital, term funding, structured finance, cash management, trade top quality customer service and an array of digital initiatives. The finance and forex management backed by comprehensive electronic franchise will bank on the emerging opportunities available in the banking solutions, which provide easy day to day operations for market, which will help to reduce the internal and external chal- the Bank's clients. During FY20, this business scaled up further lenges, ultimately taking the Bank to its stated vision of becoming with a closing loans and advances of ` 50725 Cr as compared to the Most Admired Bank, Digitally Enabled for Micro, Small, Medium,

52 Management Discussion & Analysis Annual Report 2019-20

53 ` 47569 Cr in FY19. The focus of wholesale banking continues to Business Banking be the preferred banking partner to its clients, with a well-designed Business Banking, comprising of business loans up to ` 5 Cr mainly client selection strategy and a robust credit underwriting process. to Micro, Small and Medium Enterprises, could register a growth of During FY20, customer engagement under this division has further 11%, disbursing 13600+ loans during FY20. strengthened, with your Bank being preferred for multi-product Business Banking vertical focuses on granular growth through relationship with tailor made and differentiated solutions to cater to neighbourhood banking and is one of the high yielding portfolios the client’s banking requirements. of your Bank. While the business unit is mainly driven through The distribution continues to be expanded through Relationship the traditional strong hold- the Branch Network, FY20 witnessed Management structure at numerous locations and touch points to introduction of Relationship Managers in select locations that had cater to the entire value chain across business verticals. This approach potential to grow further with the Relationship Managers focusing has helped your Bank in tapping various Retail, SME and cross-sell on acquisition of new customers. opportunities. Most of your Bank's clients have moved to digital The vertical conducted extensive market study in FY20, benchmarked platform of the Bank, “Fed E Biz” and going forward all products the competitive products along with customer requirements and shall be offered and serviced through this platform in line with the introduced new products to keep up with the changing market philosophy of “Digital at the Fore, Human at the Core”. requirements. The products were well appreciated and accepted. Your Bank entered into tie-ups with partners for daily cash collection Commercial Banking arrangement for Business Banking customers. The arrangement, Commercial Banking division focuses on providing end-to-end which was successfully piloted in select locations, facilitates daily financing solutions to Mid-Market and Medium Enterprises. Your collection of cash from customer location by the agent of the Banking Bank’s offerings in this segment include working capital, term loan, Correspondent (BC) and the remittance to the customers account trade finance and advisory services, cash management, supply chain using fund transfer APIs integrated in the mobile device carried by finance, foreign exchange services, structured offerings, gold metal the BC agent. The arrangement has started gaining customer delight loan and liability products. Bank could leverage upon its relationship and serves as an effective measure to ensure proper routing of funds. structure, branch network, digital platform and multiple product Retail Banking offerings to add many New to Bank clients as well as increase in wallet share of business with existing clients. During FY20, this During FY20, your Bank could register a growth of 7% in CASA amidst business scaled up further with a closing asset position of ` 12066 various ongoing issues like Covid-19 pandemic, recession threats etc. Cr as against ` 11525 Cr in FY19. The business continues to have a The total deposits grew by 13%. Retail deposits constituted 90% of diversified and granular portfolio in terms of sectors and geography. the total deposit. The Bank's focus in Commercial Banking will continue to be the Bank Prime focus of your Bank was to on-board new relationships through of FIRST CHOICE for all its clients. a dedicated team of Relationship Managers, ensuring acquisition of CV/CE Business high-value savings accounts and Corporate Salary accounts including salary accounts of State/ Central Government entities. Your Bank has The CV/CE Division finances single unit owners, fleet operators and also leveraged its commercial / institutional banking clients’ employee strategic clients for their purchase of new and used Commercial salary account in a meaningful way. Vehicles and Construction Equipments. The Bank commenced this st business in FY19 in the states of Tamil Nadu and Kerala in view of Your Bank is the 1 Private Sector Bank in the country to link savings the strong presence and during FY20, gradually expanded the reach bank deposit rate to external benchmark rate (RBI's Repo Rate). The to cover Southern and Western India. During the year, the Bank also Bank launched 3 new SB variants on the basis of geography criterion on boarded talent with relevant industry experience to strengthen its viz. Club, Delite and Pride. teams in business acquisition, credit underwriting and collections. Your Bank is focusing on more tie-ups with Fintech Partners via API Despite industry challenges in the form of economic slowdown, axle and Open Banking programmes paving way for more opportunity norms, migration to BS 6 and finally Covid-19, the Division more and access to the millennial segment with special thrust on salaried than doubled its total book size to ` 591 Cr with a good mix of new clients. The projects are scheduled to go live in FY21. and used vehicles spread across different user groups in strategic The Bank is now one among the seven leading banks in the country client segments while ensuring robust asset quality. The Bank could which have been empanelled by NSE Clearing Limited for submitting on-board a large number of new clients with significant cross sell Fixed Deposit Receipts (FDRs) issued as collateral to clearing members and fee income opportunites. in electronic form (e-FDRs).

54 Annual Report 2019-20

55 Your Bank could grow the portfolio size to ` 1457 Cr in the Corporate investments and this results in intermittent redemptions. The Banks Salary segment. Thrust was given to deepen relationships with current business AUM, post these redemptions, stands at ` 500 Cr. existing clients of Corporate and Commercial Banking and thereby Business through this association last FY, brought in a fee revenue of increase the Corporate Salary accounts from their universe. ` 2.4 Cr to the bank. With the added focus on HNI segment, CASA share from HNI Bank’s first dedicated Wealth Management Centre attached to segment to Bank’s total CASA improved to 45.25% in FY20 as Ernakulam/ Bypass Branch for professional WMS services was opened compared to 40.72% in FY19. Number of HNI profiled customers during the year. The Bank also started periodic communication has reached 197857 in FY20 fetching a growth of 11% Y-o-Y in client series like Market Outlook, Quarterly Outlook, Podcast etc as part of count. promoting WMS business among customers. This year, HNI vertical was instrumental in launching the flagship The existing WMS platform provided to the clients is co-owned by the Savings scheme for HNIs- Celesta Savings account (for both Residents Bank & Equirus and as on 31st March 2020, Bank has on-boarded and NRs). This account is clubbed with the premium debit card variant 3124 clients into the platform. Presently, there are 21 dedicated “Celesta” and offers a host of exclusive offerings like airport pick up Investment Relationship Managers, supported by 24 RMs from and drop, exclusive lifestyle offerings, concierge services, exclusive Equirus. The products in focus that are major contributors to revenue relationship managers for financial and wealth management are Mutual Funds, Portfolio Management Services, Bonds, Unlisted advisory etc. The scheme was launched during November 2019 and Securities, Offshore products etc. Equirus has an open architecture during the short period since the launch, has gained much popularity platform through which it serves 25+ AMCs and 7 PMS fund houses. adding 1107+ accounts with a balance of ` 491 Cr to HNI portfolio. The Bank registered a business figure of ` 78 Cr in Para Banking Fee The retail loan book of your Bank grew by 19% reaching ` 37878 Cr Income with the following initiatives/ outcomes: forming 31% of the total advances of your Bank. The retail book has • Insta-Demat (Instant Demat opening through FedNet) was the seen good traction across all its major products. Mortgage backed most innovative product that your Bank launched in FY20 and Housing Loans and Retail Loan Against Property (Retail LAP) continue has received encouraging feedback from all stakeholders. Your to be the major components of the retail loan book with a combined Bank is the first in India to launch this facility. The Bank was share of 67% and housing loan constitutes 72% of this share. During awarded for Best Innovative Strategy of the year by CII-CDT the year, the housing loan portfolio crossed ` 18000 Cr, registering and ETBFSI Excellence Awards 2019 for the category Most a growth of 18%. The auto loan portfolio grew by 39% crossing Innovative Partnership Strategy of the year by a Bank, instituted ` 3,200 Cr in book size and the personal loan book grew by 93% by Economic Times reaching a size of over ` 1,400 Cr. Your Bank introduced a new loan • The Bank on-boarded SMC Global Securities Limited and IIFL origination system for auto loans designed at improving delivery Securities Limited as new partners for Fed e Trade along with speed and enabling the Bank to sanction loans digitally. Your Bank Geojit Financial Services Limited. also tied up with auto giant M/s Maruti Suzuki India Ltd, to enhance • Insurance business has been the largest contributor to para- its presence in the auto segment. Over 90% of the unsecured banking fee income. The Bank have partnered with IDBI Federal personal loans originated by your Bank last fiscal has been originated (Life Insurance JV), Max-Bupa, Bajaj-Allianz, HDFC-Ergo & digitally using its Be Your Own Master (BYOM) platform. Your TATA-AIG (non-life insurance) for insurance business. TheBank Bank also associated with digital platforms like (GPay), offers an array of insurance products which helps in protection Paisabazaar etc. to reach out to its clients to push its pre-approved & safety against various risks. Bank through this association has offers. Your Bank continued to associate with FinTechs to reach out offered various products such as annuity plans, guaranteed to New to Credit and New to Bank segments. wealth plans, hospital cash, medical insurance, credit insurance, Bank’s association with WMS (Wealth Management Services) partner travel insurance, etc. M/s Equirus Wealth was initiated towards the end of Calendar Year • The Bank has introduced QR-based insurance, which facilitates 2018. In the initial phase, the focus was on streamlining the framework complete digital journey for its customers. for the arrangement. Later, FY20 witnessed significant boom in • Your Bank obtained Tele marketing licence from IRDA for the business generating substantial growth in AUM (Asset Under insurance sales and launched Insurance Tele sales activity from Management) and revenue. The arrangement was instrumental in January 2020, from its contact center. bringing more New to Bank Clients to our WMS fold. From inception Cards and Payment Solutions of this association till 31.03.2020, the Bank could source business AUM over ` 800 Cr. Clients, especially corporates, often churn their Your Bank has completed a significant revamp of debit card

56 Management Discussion & Analysis Annual Report 2019-20

57 proposition both in the terms of technology and design. Bank has segment, it will continue as a key growth engine for the Bank in the started issuing contactless debit cards from August 2019 with coming years also. refreshed card designs in line with the theme of “Digital at the Fore Agri Banking and Human at the Core”. Bank has followed a customer segmentation approach and designed card value propositions accordingly. Bank is Agriculture, with its allied sectors, is unquestionably the largest now issuing cards across four variants Celesta, Imperio, Signet and livelihood provider in India, more so in the vast rural areas. Crown. ‘Celesta’ is the Bank’s unique proposition for ultra HNI clients It also contributes a significant figure to the Gross Domestic with customized offers and benefits. Product. Sustainable agriculture, in terms of food security, rural employment, and environmentally sustainable technologies such Your Bank has become the 05th Bank in the country to launch Debit as soil conservation, sustainable natural resource management and Card EMI (DC EMI) facility in association with Pine Labs. DC EMI biodiversity protection, are essential for holistic rural development. enables customers of the Bank to purchase goods and services across The increased presence of the Bank’s branches in rural and semi- 45000+ Pine Lab terminals installed in the country. urban areas provides a great opportunity to your Bank for improving Your Bank has partnered with leading e-com merchants in the country its exposure to Agriculture and Priority sector. Our unique set of to conduct promotional campaigns. More than 75+ campaigns have products and competitive customer service enabled the Bank to meet been conducted across leading brands like Amazon, Flipkart, Myntra, farmer demands for better credit delivery. High calibre workforce of INOX, BookMyShow, Indigo, Snapdeal, MMT, Big Basket, Swiggy, Development Officers and Agri Relationship Managers are deployed and Reliance Digital. This has not only helped in increasing the brand across the network to cater to farmer clients of various genre. presence/ mind share, but also in increasing spends on debit cards. Agricultural advances of your Bank as on 31.03.2020 stood at ` The number of customers using debit cards for spends on POS and 12874 Cr against the base figure of ` 11444 Cr thus registering a E-Com have increased exponentially. Targeted campaigns with the growth of 12% in FY20. Your Bank is committed to remain as a help of data analysis have helped in increasing monthly spends and dominant player in agri financing portfolio in the years to come. cost optimisation. Monthly spends on debit cards reached an all-time Your Bank also focussed on providing gold loans to borrowers, as high of ` 921 Cr (per month) in December 2019 which shows an easy source of finance to the needy with quick turnaround time. healthy transformation to digital channels. Your Bank has launched FedDelights - a dining proposition, which offers minimum 15% The Gold Loan segment grew from ` 7228 Cr to ` 9301 Cr in the discount on Federal Debit Cards across 450+ restaurants Pan India. FY, registering an impressive growth of ` 2073 Cr. Various Gold Your Bank also became the first Bank to go live with MasterCard loan schemes tailor-made to suit the needs of various sections of Shop Perks – a unique cash back program launched by MasterCard in the society were deployed, such as Agricultural Gold loans, Business association with issuing Banks. MasterCard has promoted the Bank gold loans, Overdraft loans, EMI Gold loans and bullet repayment across all their social media channels for achieving this milestone. loans. Your Bank also launched digitally powered doorstep gold loan services in association with a FinTech company, to enhance the ease Non- Resident Banking of availing gold loans. During FY20, NR business of the Bank grew by 14% and the NR Priority Sector Advances CASA portfolio grew by 13%. Total NR deposit of the Bank crossed the milestone figures of` 60,000 Cr in March 2020. Personal Inward The Bank has continued its growth under Priority Sector lending remittance business achieved the milestone figure of` 95,000 Cr this with added thrust on small and marginal farmers, micro enterprises FY and has registered 14% growth. The Bank has started remittance and weaker sections of the country. The focus areas for credit were tie up with 3 new partners from three new geographies- Speed Agriculture, Retail, SMEs, Education, Housing and other productive Money Transfer - Japan, Lulu Money - Hong Kong and Bank Al Jazira sectors of the economy. - Saudi Arabia. Micro and Rural Banking NR Franchise always presents a plethora of opportunities for your Business through Business Correspondent (BC) model Bank. The dominance in the remittance business with robust Despite vast expansion of formal credit delivery system in the remittance engine and more than 110 plus remittance arrangements country, dependence of the people at the bottom of the pyramid on across the globe supported by a very strong mix of savers will middlemen or money lenders still continues in many geographies. synergize with the efforts of the Bank to further strengthen the With this background, your Bank has developed sustainable franchise. livelihood programmes to provide financial and non-financial The Bank has strengthened the Relationship Model further for NR services through branches and business correspondents. The model business. Given the opportunities and potential of NRI business developed is to empower financially excluded class of people. It

58 Annual Report 2019-20

also promotes socio-economic development at the grass root level FY20, which have benefitted more than 76,000 people. through community-based approach. Your Bank participated in two Financial Literacy Weeks (FLWs) As advised by Reserve Bank of India, your Bank has formulated observed by RBI during the Financial Years 2019 and 2020. FLW – Business Correspondent Policy. Based on the policy norms, the 2019 during the period from 03rd to 07th June 2019 and FLW 2020 Bank empanelled six Corporate Business Correspondents in selected during the period from 10th to 15th February 2020 across the country. geographies for building up of different portfolios like SHG/JLG The focus during the FLW-2019 was on the benefits of using Bank loans, Micro MSME loans and Gold Loan. finance for agricultural needs, digital banking, advantages of timely In FY20, your Bank could acquire 13,430 new customers with a total repayment of Bank loans and insurance for farming activities while business of around ` 60 Cr through these Business Correspondent FLW-2020 focused on Micro, Small and Medium Enterprises (MSMEs) tie-ups. Your Bank is giving adequate thrust in various loan schemes as target group with the primary theme being "Formalisation, like PMMY (Mudra), PMEGP, NULM, NRLM etc., promoted/sponsored Collateral Free Loans, Trade Receivables Discounting Systems (TReDS) by the Government apart from financing to Self Help Groups and and Timely Repayment of Loans". Joint Liability Groups. During the financial literacy week, your Bank has done the following Financial Inclusion activities: 1) Rural Branches have displayed the posters on FLW theme in The objective of Financial Inclusion is to extend financial services to prominent place inside the branch premises and distributed the large unserved population of the country to unlock its growth leaflets on FLW to customers. potential. It also strives to achieve growth that is more inclusive by making finance available to the poor in particular. Through methods 2) Displayed the FLW message on home page of our Bank’s website like financial literacy, the Bank is enabled to channelize the savings in English and Hindi. of the unserved population of the country and offers new business 3) Displayed the FLW message on the Bank’s ATM screens in avenues for lending to this group. English and 7 other regional languages. National Strategy for Financial Inclusion (NSFI) 2019-24 was launched 4) Financial Literacy Centres (FLCs) of the Bank conducted special by Reserve Bank of India on January 10, 2020. NSFI 2019-24 sets camp on each day of FLWs, based on the focus themes of forth the vision and key objectives of Financial Inclusion policies respective FLWs. in India to help expand and sustain financial inclusion process at Your Bank offers Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts National Level through a broad convergence of action involving all to the general public with OD facility in eligible cases (mainly to the stakeholders in financial sector. weaker section and low income household groups), with OD facility up to ` 10,000/- to eligible customers, with an objective to ensure Financial Literacy through Rural Branches and Financial Literacy Centres access to financial services, namely savings and deposit accounts, remittance, credit, insurance, pension in an affordable manner. In Financial Literacy programmes intend to provide basic banking FY 20, Ministry of Finance, Government of India has announced the knowledge to people across various corners of the life. The financial continuation of Comprehensive Financial Inclusion Mission (Pradhan literacy classes are organized and conducted by branches in rural Mantri Jan Dhan Yojana – PMJDY) with change in its focus from areas. Your Bank has currently 158 rural branches that conduct opening accounts for ‘every household’ to opening account for financial literacy campaigns to the public and school children for ‘every adult’. The main attraction of the scheme is a zero-balance providing basic banking knowledge to them. bank account that comes with RuPay debit card and free accidental Federal Ashwas Financial Literacy Centres (FAFLCs) are your Bank’s insurance cover of ` 2 L. Till date your Bank has opened more than initiative to provide free, unbiased, fair and coordinated financial 5.70 L accounts with an outstanding balance of ` 239.69 Cr. Average education through financial literacy classes and credit counselling. balance in PMJDY accounts as on 31.03.2020 is ` 4,205/- . Ashwas centres have turned out to be effective financial literacy and and mobile seeding in PMJDY accounts with your Bank is credit counselling centres in rural and semi urban areas. All the Banks 86% and 97.5% respectively as on 31.03.2020. will get benefits through FLCs established for imparting financial literacy/creating awareness on various Banks’ products and educating Your Bank is also actively participating in the PM’s social security the targeted segments like- farmers, micro & small entrepreneurs, schemes (Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri self-help groups, senior citizens and school children. FLCs also impart Jeevan Jyoti Bima Yojana and Atal Pension Yojana) launched by the ‘Going Digital’ camps to rural populaces. These centres undertook Government of India. The PMSBY and PMJJBY schemes provide low around 1540 literacy camps and 350 counselling sessions during the cost insurance benefits to the public for the death or disability due to

59 Management Discussion & Analysis accident and for death due to any reason respectively. Atal Pension expanded its Treasury product basket thereby adding a new Yojana (APY) is the Government backed pension scheme provided revenue line. Besides adding a diversified revenue stream, this has to unorganised sector. During the FY20 your Bank received the significantly added value to the existing customer relationships. The Certificate of Excellence from the regulator Pension Fund Regulatory extensive usage of data analytics in understanding customer business and Development Authority (PFRDA) for outstanding performance has helped the Bank in increasing the Forex business through its and lasting contribution towards Atal Pension Yojana under Pledge branches. to Persist campaign, Jan – March, 2020 organised by PFRDA. Your Bank conducted regular one-on-one meetings with exporters/ Your Bank could help 322 families of our deceased customers who importers at zonal level to strengthen the relationship, to assess joined the low-cost insurance schemes (PMJJBY and PMSBY) by the financial position of the units, to support additional credit settling claims amounting to ` 6.43 Lakhs. requirements and to acquire new relationships. Your Bank is closely associated with various trade bodies/ associations including Resurgent Kerala Loan Scheme (RKLS) Federation of Indian Exporters Organizations (FIEO), Engineering Under Resurgent Kerala Loan Scheme (RKLS), which was launched as Export Promotion Council (EEPC) etc. for deepening relationships special scheme for the flood relief to the members of Kudumbasree with exporter/importer communities and offering guidance. SHGs, we could generate a loan book of ` 21.46 Crores in FY 19 and Your Bank has a dedicated Foreign Exchange Cell attached to ` 4.40 Crores in FY20 (scheme was discontinued in July 2019). Treasury Department at Mumbai catering to all the requirements of the clients / branches on foreign exchange, Trade Finance, FDI/ODI/ Integrated Treasury Operations ECB and cross border transactions. The Bank has been giving much Your Bank’s treasury operations involve Balance Sheet Management, thrust to the development of forex business and is continuously Liquidity Management, maintenance of Statutory Reserve Require- endeavouring to improve the operating skills of the personnel ments, trading in Money Market Instruments, Bonds and Debentures, through meetings, interactions and training programmes. Your Equity, Alternate Investment Instruments and Foreign Exchange. Bank is also in the forefront in conducting Foreign Exchange Dealers The Bank has dedicated and full-fledged dealing desks in the major Association of India (FEDAI) training programmes for banking segments namely; Foreign Exchange- Interbank and Merchant fraternity. This enabled the designated branches to improve their Forex. Derivatives-Currency Options / Cross Currency Swaps (on back operating efficiency substantially. The Bank periodically updates and to back basis), Currency Futures, Interest Rate Futures. Domestic - codifies the RBI/ FEDAI instructions applicable for forex business, in Money Market, Government Securities, Bonds and Debentures, the form of comprehensive Directions/ circulars/Handbooks for the Certificates of Deposit, Commercial Paper, Interest Rate Swaps and benefit of its operating staff. Equity. The Treasury & Forex dealing room is located in Mumbai. The Your Bank has published a citizen charter for forex facilities and Bank is providing web-based trading platform and intraday trading publishes the exchange rates of various currencies daily in Bank’s facilities to clients in the G-Sec segment. Bank has implemented an website for the benefit of the public. Bank continues to be a member enhanced software system to scale up the treasury operations. This of the Technical Advisory Committee of FEDAI. ensures total automation of the treasury activities and seamless inte- gration with the core banking system of the Bank. Foreign exchange business of your Bank is conducted through two ‘A’ category branches and eighty eight (88) ‘B’ category branches/ Foreign Exchange Business offices and the IFSC Banking Unit (IBU) Branch in GIFT City (Gujarat Foreign Exchange Business of your Bank has taken a leap in the past International Financial Tec City). Entire foreign exchange / trade 2 years and the entire business model has been revamped to focus finance transactions are centralised to extend timely and efficient on distribution of Forex and Interest Rate products oriented towards service to forex clients and improve effectiveness of the branches. the hedging needs of the clients. The Treasury Sales Team with its Your Bank has introduced the concept of Trade Hubs/Corporate Client strengthened force of 23 members spread across the country is Service Centres in all metro cities and other major centres to bring offering these hedging products to the Bank’s clients. The Treasury more efficiency in handling trade transactions. SWIFT operations are Sales team works closely with all the Relationship Managers of the also centralized to make it faster and reliable. Presently, all financial Bank covering the Large Corporate, SME and Retail segment of messages in SWIFT are generated only through Straight Through clients to offer its Forex and Interest Rate Products. The regular co- Process (STP), whereby contents of such messages flow directly from ordination between the Treasury Sales team spread across various the accounting system (Core Banking Solutions) to SWIFT platform centres and the team at the dealing room in Mumbai has resulted in without manual intervention. In the trade finance segment, export enhanced distribution of these products to the our customers. With credit facilities are provided in both rupee and foreign currency for the Derivatives Desk fully active this year, The Bank has significantly pre-shipment and post-shipment activities of the exporters. Non-fund

60 Annual Report 2019-20

based facilities, such as letter of credit, stand by letter of credit (SBLC), country in a single platform in a machine readable format are some guarantees etc. are extended including various structured products. of the big platforms that have become models for innovation and Federal Bank – IFSC Banking Unit (IBU) given rise to the ability to create innovative products that leverage the billions of data points created by these platforms. Your Bank opened its IFSC Banking Unit (IBU) at India’s first International Financial Service Centre (IFSC) located at GIFT City The traditional way of Banking is giving way to innovative modes of (Gandhinagar, Gujarat) in November 2015. IFSC in GIFT City is Banking at a very fast pace. The innovations and regulations around conceptualized and designed at par with other global financial Open Banking, Personal Data Protection Bill, Neo Banking, Data Fi- centres operating in various parts of the world viz. Hong Kong, duciaries etc are paving way for new age Banking. Today your Bank’s Dubai, Singapore etc. The branch is like an overseas branch situated customers can open an account in less than 5 minutes using e-KYC in an overseas jurisdiction, enabling the Bank to explore International services facilitated by UIDAI and regulated by RBI, get an auto loan business opportunities. in less than 30 minutes with a combination of e-KYC, Digital ID Veri- fication, Online Credit score and other data points received from Various products offered, and activities handled from Federal Bank fiduciaries. IBU are: Your Bank now acts as a new age digital platform that facilitates • Credit facilities to Wholly Owned Subsidiaries (WOS))/Joint financial transactions happening across the world through own plat- Ventures (JV) of Indian companies registered abroad forms as well as partner platforms. • Credit facilities to overseas companies • External Commercial Borrowings (ECB) Bank as a new age digital platform • Trade Finance Products • Non-fund based facilities (Standby Letter of Credit/Bank Guarantee etc.) Vendors • Acceptance of foreign currency deposits Service • Treasury operations Partners Providers Federal Bank IBU enables your Bank to raise Foreign Currency resources from various overseas Banks and other financial institutions, multilateral agencies etc. With the opening of IBU, Platform your Bank caters both domestic and international client’s foreign currency funding requirements. IBU boosts the balance sheet of your Bank by participating in various foreign loan syndications and FinTech Vendors extends finance to eligible overseas entities across different foreign Players currencies. Federal Bank IBU has executed transactions in various segments like manufacturing, metals, media & entertainment, health care, electrical, food, construction etc.

Digital & Technology Bank provides an open platform for financial transactions Indian Banking is in a transformational phase for the last 5 years and • Customer creation expected to transform further in the coming years too. The rise of • Financial transactions the FinTech eco system has paved way for many innovations in the Banking Industry and the waves of the revolutions brought in by the • Digital Lending JAM trinity (Jandhan, Aadhaar and Mobile) are going to create ripples • Wealth Management in many functions that have direct linkage with Banking industry. • Customer authentication New Platforms are being created and innovations around such plat- Bouquet of Financial Products forms are further giving rise to new products. Bharat Bill Payment Use of ML & AI on Data System, a platform that aggregates every biller in the country, Your Bank continued to focus on empowering customers with digital National Electronic Toll Collection, which provides a unique ID for products and services to ensure uninterrupted banking services. every vehicle to cross tolls by making toll collection electronic and Starting with customer on-boarding using digital channels through Goods and Services Tax Network that brings every invoice in the instant account opening platform, Tab Banking and Selfie Mobile

61 Management Discussion & Analysis 62 Annual Report 2019-20

app, the Bank is ensuring digital services at all touch points. On • Digital Personal loans and Top Up Loans March 31, 2020, nearly 90% of all eligible savings accounts were • Flexi EMI loans- converting existing debit card purchases to EMI opened digitally thereby ensuring ultimate customer satisfaction and • Check out EMI loans at Point of Sale Terminals cost savings for the Bank. • Digital onboarding of Credit card through BYOM Your Bank’s digital platforms like FedMobile, FedNet, Lotza and • Loan Against Deposits FedBook for retail customers and FedCorp, Corporate FedNet, Paylite and Fed e-Biz for its corporate and SME customers underwent a • General Insurance subscription for BYOM loans series of updates and enhancements to improve customer experience • SMS Eligibility Check for BYOM customers and security. As on 31.03.2020, a little over 82% of the Bank’s • Personal Loan Through GPay, Paisabazaar, Flex Money transactions was handled through its digital platforms. More than 90% of the retail individual transactions happened through Digital Major Launches in FY20 Channels, especially Mobile Banking which accounted for 70% of all transactions. The Bank launched many initiatives during the year. Few of them are • Integration of Kerala Water Authority in Bharat Bill Pay Open Banking shapes a new business and system architecture. • Implementation of UPI 2.0 Your Bank started investing in Open Banking since 2017 and today Federal Bank is recognised as a strong player in API Banking with • Implementation of AePS 2.5 more than 83 APIs and 13 API bundles. More than 100 partners are • API Based e-Mandate connected to the platform. The open banking platform is a plug and • Tab based Loan Origination System for Auto Loans play one where partners can look at the APIs and make best use of • Fed e-Studio- Kiosk based smart branch for self-service transactions. the Sandbox and documentation to build the suitable product that they want to roll out. • Instant Online Demat account opening through FedNet in association with NSE New Technologies adopted during the Fiscal • NSCCL e-FDR project for online deposit creation for NSE Clearing The Bank announced the Ripple Partnership during FY19 and the settlements. integration with Ripple got completed during FY20. The Bank also • Online Insurance partnership with HDFC Ergo announced the Corda partnership and delivered a full-fledged block- chain based remittance platform. The Bank continued its RPA journey • Enhancement in Internet Banking such as Duplicate PIN setting and included more than 100 processes under RPA. The Bank also through SMS/Email, PIS statement generation, Corporate FedNet income tax e-filing, Nomination facility, Forex Card implemented Oracle Autonomous Cloud for analytics and plans to issuance, Utsav Rewards integration, Debit Card PIN setting, explore the platform further for better analytics led products and Online FedNet registration for E or S account, Forgot User ID, services. The Bank started its AI journey and plan to launch an Omni Apply debit card and BBPS integration. channel AI Bot by the middle of next Fiscal year. • BHIM Aadhaar Pay merchant solution and Micro ATM based on New Partnerships AePS. Federal Bank is the go to Bank for FinTechs and Neo Banks. Some • FASTag recharge through UPI with virtual VPA for every vehicle. of the key partnerships include the likes of Google, PineLabs, • EnCollect : An Omni channel delinquent collection system Ripple, NSCCL, NSE, Paisabazaar, Rupeek, NST, BillDesk, HDFC Ergo, SafeGold, Clayfin Technologies, Karza, Lentra, CIBIL, KWA, Hunter, Digital Adoption & Merchant Acquisition Experian etc. Digital share of transactions of your Bank reached 82.64% at the end BYOM- Be Your Own Master of the Fiscal of which corporate digital share of the Bank reached Be Your Own Master, the pre-approved digital lending platform of 70.89%. 90.28% of the transactions done by retail customers are Federal Bank which was launched in the year 2017 has seen many through digital channels. The total number of digital users of the enhancements over the last three years and now offers the following Bank stood at 22.98 lakh at the end of the Fiscal. The total number of services merchants with BQR reached 1,06,444 at the end of the year.

63 Management Discussion & Analysis Branch Vs Digital

82.64%

79.69% 50.7 76.84% 48.22 73.50% 76.15% 40.82 39.12 39.06 14.09 12.25 12.29 12.28 10.65 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

Transactions through Branch(Lakhs) Transactions through Digital Channels(Lakhs) Digital Share

The digital users grew by 46.57% YOY and the Mobile Banking volumes crossed ` 5000 Cr mark during the Fiscal to reach ` 5725.53 Cr as on 31.03.2020.

YoY Growth in Digital sers Mobile Banking Volume (Cr) 46.57% 5725.53

37.01% 5460.37 4582.95 35.92% 4361.36 27.67% 4243.65

16.59%

Mar-19 Jun-19 Sep-19 Dec-19 Mar-20 Mar-19 Jun-19 Sep-19 Dec-19 Mar-20

SWIFT transactions are now GPI (Global Payment Innovation) Credit Health Management compliant Credit Administration Department ensures health of credit portfolio Your Bank’s SWIFT messages are now SWIFT- GPI compliant, SWIFT through meticulous compliance of pre-and post-disbursal covenants GPI enables swift messages to be tracked at any point of time, and of credit sanctions and error free documentation. The Department this also gives an insight of the charges deducted by each bank in the prepares the documents as per sanction terms and verifies the course of transmission. GPI also enables the user to stop and recall a executed documents once they are submitted for setting up of limit transaction at any point of time before the funds are credited to the and ensures creation of charge and perfection of securities within final beneficiary account. Your Bank is the 5th Bank in the country to the stipulated timeframe. The Department also does a follow up of go live on GPI platform. covenants required by credit policy and the Sanction Order, to ensure due compliance thereof. Further, the Department ensures sufficiency SWIFT INDIA Domestic Services and protection of underlying assets, and also ensure securities are Your Bank becomes the 6th Bank in India to go live on SWIFT- updated and revalued at regular intervals. The Department constantly GLI (Go Live India) Platform. SWIFT India Domestic Services has endeavours to ensure an excellent turnaround time. been created under the license of Reserve Bank of India with an The preservation of asset quality is of paramount importance for your objective to adopt the best in class messaging services for handling Bank and the Credit Monitoring Department employs various tools various financial and non-financial transactions in a secured way. to closely monitor the credit health of the portfolio on an ongoing Through this arrangement, your Bank has laid the platform on basis. Gathering and analysing information from external and which future services in trade digitization like E-stamping, SAFE – T internal sources and initiating corrective actions form the crux of the (Invoice Validation) for bill discounting, E-BG and ecosystem with Big health management process. The activities are aimed at the upkeep Corporates for C2B trade and treasury can be made live. Currently of the credit quality through properly defined systems, procedures your Bank is live with Interbank trade messages in this platform. and practices. The stressed situations are identified well in advance

64 Annual Report 2019-20

and prescription and implementation of corrective action plans are an individual as well as portfolio basis. In comparison, retail lending, brought in wherever required. This end-to-end monitoring of all due to the granularity of individual exposures, is managed largely on loans & advances disbursed across the Bank ensures credit discipline. a portfolio basis across various products and customer segments. For both categories, there are robust follow up and monitoring Stressed Asset Management mechanisms in place to ensure credit quality and to minimise default. Gross NPA as a percentage of gross advances ratio of the Bank stood The factors considered while sanctioning retail loans include income, at 2.84% and Net NPA as a percentage of net advances ratio of demographics, employment, previous credit history of the borrower the Bank stood at 1.31%. The Provision Coverage Ratio (including and tenor of the loan. In wholesale loans, credit risk is managed technical write offs) stood at a healthy 72.48%. by capping exposures on the basis of borrower group, industry, credit rating grades and geography amongst others. This is backed Risk Management by portfolio diversification, exposure monitoring, stringent credit The Risk Management philosophy of your Bank is to take risk by approval processes and periodic post-disbursement monitoring and choice rather than by chance. Your Bank is exposed to various risks remedial measures. A research and analytics wing functions within that are inherent to any banking business. The major risks are credit the risk department for conducting portfolio studies, industry/ sector risk, market risk including interest rate risk and liquidity risk, informa- analysis and to capture up-to-date market information. Your Bank tion and cyber security risk and other operational risks. Your Bank has is continuously reviewing and validating the credit rating models policies and procedures in place to identify, measure, assess, monitor / score cards for its appropriateness and predictiveness. Credit risk and manage these risks systematically across all its portfolios. Board management in your Bank, through its various policies, risk assessing of Directors oversees and approves the risk policies and strategies tools and risk mitigating measures ensures robust credit growth to establish an integrated risk management framework and control with superior asset quality. Currently, credit risk capital is computed system in the Bank. The Risk Management Committee (RMC) of using the standardized approach. RBI guidelines on Basel III capital the Board oversees management of various risks associated with regulations have been implemented and your Bank is sufficiently business, systems and processes. Executive Level Committees ensure capitalized as per the current requirements under Basel III. effective implementation of risk policies of credit, market and opera- tional risks. Risk management framework is subjected to review and Market Risk Management up-gradation on an ongoing basis, in tune with regulatory guide- Market Risk arises largely from the Bank’s statutory reserve lines and best practices in the industry. Integrated Risk Management management and trading activity in interest rate instruments, equity Department headed by Chief Risk Officer coordinates various risk and forex market. Your Bank has a well-developed framework, management functions of your Bank. An independent risk govern- comprising of Board approved policies and established practices, ance structure has been put in place, duly ensuring independence for management of the market risk. Your Bank has set risk appetite of risk measurement, monitoring and control functions. In order to and VaR limits to measure and control interest rate risk, equity price focus on maximization of return on capital, your Bank has aligned its risk, forex risk, liquidity risk and other market related risks. Your Bank business strategies to a Risk Appetite Framework. Risk based pricing is using various tools like stress testing, modified duration, PVBP, framework has been implemented for pricing of loans to evaluate VaR, position limits, loss limits, NOOP limit, AGL etc to monitor returns vis-a-vis risks taken. and contain market risk. Your Bank has established an independent mid office at the floor of Treasury, as part of Market Risk Division, Credit Risk Management which reports directly to the Head of the Risk Department and Your Bank has a centralized credit risk management division functions as the risk control unit for the treasury activities. The Mid- independent of its business functions. Macro factors such as Office scrutinizes the treasury deals and transactions from market slowdown in economic growth, imbalances in the economy, risk and operational risk management. Detailed policies are put in stress in certain industries etc and micro level factors such as poor place for the conduct of business exposed to market risk and for underwriting standards, in adequate monitoring, weak collection effective management of all market risk exposures. The policies and and recovery mechanism etc are a few elements that contribute to practices also take care of monitoring and controlling of liquidity the credit risk of a Bank. risk arising out of its banking book, trading book and off-balance Your Bank has strong credit appraisal and risk assessment practices in sheet exposures. Currently, capital charge for market risk is computed place for identification, measurement, monitoring and control of the under the Standardized Duration Approach. Value at Risk (VaR) is the credit risk exposures. Your Bank has a distinct credit risk architecture, tool used for monitoring risk in Bank’s trading portfolio. The VaR and policies, processes and systems for managing credit risk in both its Stressed VaR for market risk are monitored daily. retail and wholesale businesses. Wholesale lending is managed on

65 Management Discussion & Analysis Liquidity Risk Management & Interest Rate Risk products and processes or any modifications to existing products Management and processes are vetted to identify and understand the nature and Liquidity risk is the potential inability to fund increase in assets, degree of the risks the Bank would be exposed to and checks and decrease in liabilities or meet obligations as they fall due, without controls are implemented to mitigate the risks. Your Bank has put in incurring unacceptable losses. Interest rate risk is the risk where place a fraud prevention framework, whereby various transactions changes in market interest rates affect the Bank’s earnings through are monitored by dedicated teams from the angle of fraud risk and changes in its net interest income (NII) and the market value of Anti Money Laundering (AML). equity through changes in the economic value of its interest rate Business Continuity Management sensitive assets, liabilities and off-balance sheet positions. The policy Your Bank has put in place comprehensive Bank-wide Business frameworks for management of liquidity risk and interest rate risk are Continuity Management (BCM) plans and procedures to ensure established vide the Bank’s Asset Liability Management policy. Your continuity of critical operations of the Bank in the event of any Bank has established risk appetite limits and other tolerance limits for disaster/ incident affecting business continuity. The Bank's Business both liquidity risk and interest rate risk. While the maturity gap and Continuity Program is developed considering the criticality of the stock ratio limits helps manage liquidity risk, assessment of impact functions performed and the systems used. In terms of the Business on the net interest income and economic value help mitigate interest Continuity Management Policy approved by the board, Business rate risk. This is complemented by a stress testing programme Continuity Management (BCM) Committee have been formed at all covering both liquidity and interest rate risk. Your Bank conducts units of the Bank, which acts as Primary Crisis Management Team in various studies to assess the behavioural pattern of non-contractual the event of any business disruption. A Central Crisis Management assets and liabilities and embedded options available to customers, Team (CCMT) is in place to take responsibility and act swiftly in case which are used while managing maturity gaps. Further, your Bank of any breakdown/ failure of critical systems, occurrence of natural also has necessary framework in place to manage intraday liquidity disasters/ accidents/ pandamic affecting business continuity. Periodic risk. Your Bank’s Asset Liability Committee (ALCO) is responsible for drills and tests are conducted to evaluate the effectiveness of the monitoring adherence to liquidity risk and interest rate risk limits. business continuity arrangements and necessary steps are taken Liquidity Coverage Ratio (LCR), a global standard to assess wherever found necessary. organisation’s ability to meet its payment obligations, is used to Information Security & Cyber Security measure a Bank’s liquidity position. LCR level ensures that the Bank has an adequate stock of unencumbered High-Quality Liquid Assets Your Bank has a robust information and cyber security framework (HQLA) that can be converted into cash easily and immediately to for securing its IT infrastructure and systems. The Information meet its liquidity needs under a 30-day calendar liquidity stress Security Team headed by the Chief Information Security Officer scenario. Based on Basel III norms, RBI has mandated a minimum (CISO) formulates and periodically reviews the information and LCR of 100 per cent from January 1, 2019 and your Bank’s LCR as on cyber security policies and practices. Bank has a Security Operations 31.03.2020 stood at 196.65% and the average LCR was at 185.40% Centre (SOC) which performs security monitoring round the clock. for the quarter ended 31.03.2020. Dissemination of information and cyber security awareness among the staff and customers is undertaken on a regular basis through RBI has also mandated minimum Net Stable Funding Ratio (NSFR) of various modes. 100 per cent with effect from 01.10.2020. NSFR indicates that the Bank maintains a stable funding profile in relation to the composition Your Bank has received ISO 27001 accreditation for its critical IT areas of its assets and off-balance sheet activities. As a prudent risk including Data Centre, DR Site, ATM Switch etc. Your Bank has also management practice, your Bank has been monitoring this ratio, received the PCI-DSS certification for its card payments infrastructure. and is adequately prepared to meet the RBI mandated requirements. Internal Financial Controls Operational Risk Management Your Bank has put in place comprehensive internal control framework Your Bank has a comprehensive framework comprising of policies, and practices across all its business and support activities. The internal processes and systems for measurement and management of controls implemented are intended to manage/ mitigate the risks, operational risks. Operational risk is primarily managed by prescribing ensure compliance with laws and regulations, and provide reliable adequate controls and mitigation measures, which are being and timely financial reporting. reviewed and updated on a regular basis, to suit the changes in Your Bank has sound processes for periodic assessment and review of business practices, structure and risk profile. Your Bank is identifying internal controls. Risk Control Matrices are prepared for all processes and assessing operational risk through Risk and Control Self and products. Risks inherent in all business/ support activities are Assessments (RCSA) and monitoring of Key Risk Indicators (KRI). New identified and assessed on a periodic basis. The related controls are

66 Annual Report 2019-20

67 also identified and evaluated in terms of their effectiveness. The decisions. Capital planning ensures that the Bank is adequately adequacy and effectiveness of these controls are independently capitalized for the period ahead and has sufficient buffers to assessed on a regular basis. Wherever gaps are observed, action withstand stress conditions. plans are prepared and implemented by the product/ process owners Compliance Risk Assurance for remediation of risks and control improvements. These aspects are periodically reviewed by the Operational Risk Management Rising expectations of an ever-increasing customer base to have Committee. anywhere and anytime banking in a safe and secure mode, growing product profile in a fast advancing technology sphere and the stricter Compliance with Basel framework regulatory environment, call for a strong compliance framework in Currently, your Bank is using Standardized Approach for Credit Risk, the Bank for management of Compliance Risk. Basic Indicator Approach for operational risk and Standardized A Compliance Risk Assurance Cell (CRAC), under the guidance of Duration Approach in respect of market risk for computation of Chief Risk Officer is functioning in your Bank since May 2019 to capital charge under Basel guidelines. The Bank is gearing up with check the various regulatory and internal compliance. CRAC works data build up and system requirements for migrating to advanced with the aim to assure total compliance in the system at all points of approaches. Capital Adequacy Ratio of your Bank as on 31.03.2020 time. The unit is also involved in a detailed study on various processes under Basel III norms stood at 14.35%. Your Bank’s common equity and procedures in vogue, to identify process gaps, if any. The key is capital level of 13.29% offers good cushion for further expansion in ensuring enduring sustainability in compliance. and growth in asset portfolio and compliance with the requirements of Basel III norms. Capital adequacy ratio at consolidated bank Covid -19 Concerns level stood at 14.63%. RBI guidelines on Basel III demand building Outbreak of Covid-19 pandemic poses serious threat to lives and of capital and liquidity buffers in phases and seek to enhance the livelihoods across the World. The pandemic could severly impact minimum core capital, introduce a capital conservation buffer, and the global economy and India will be no exception. The impact of prescribe a countercyclical buffer. Your Bank has complied with the the pandemic can pose challenges in the business continuity, asset guidelines for regulatory capital under Basel III norms and is fully quality and liquidity position of your Bank. The RBI and Government prepared for moving on to complete Basel III compliance as per of India have come out with various measures to manage the the implementation schedule prescribed by RBI. Your Bank has also situation. Your Bank is closely monitoring the position and necessary complied with the Liquidity Coverage Ratio (LCR) prescribed under steps are in place to ensure business continuity. The credit quality Basel III norms. The LCR of your Bank on a consolidated basis as on is being assessed under various stress scenarios at close intervals. 31.03.2020 stood at 196.86%. Liquidity position is closely watched and contingent liquidity position as well as available sources of funds to meet contingent scenarios are Capital Management Framework assessed periodically. Your Bank conducts Internal Capital Adequacy Assessment Process Human Resources (ICAAP) to identify, assess and monitor risks that the Bank identifies as significant. ICAAP is aimed to ensure that the Bank maintains Being the FIRST CHOICE is the focus of your Bank and there are a lot capital commensurate to its risk profile and improves upon its of efforts in ensuring this thoughtful HR decisions and progressive risk management systems and framework on an ongoing basis. It activities. There is no exception to this as an employer. Your Bank has involves realistic assessment of level of risks inherent in the business been implementing several employee friendly engagements, which operations of the Bank and setting aside capital adequate to cover blend with the theme of digital interventions. Measures relating all such risks. to communication, learning, recruitment, planning, performance monitoring, welfare and wellbeing are implemented with digital as Your Bank has a comprehensive Internal Capital Adequacy the pillar and being the FIRST CHOICE as the purpose – FIRST CHOICE Assessment Process (ICAAP) Policy. The Pillar 2 risks, such as Liquidity for the Customers, FIRST CHOICE for the Investors and being the Risk, Interest Rate Risk in Banking Book (IRRBB), Concentration Risk FIRST CHOICE for the Employees. The total human capital of the Bank etc., and overall Risk Management practices as well as adequacy of stands at 12496 as at the end of financial year. The average age of capital under both normal and stressed conditions are assessed as the employees of your Bank is 37 years and the current male-female per the policy. ratio of the Bank is 60:40. Your Bank has a board approved stress testing policy that covers various extreme but plausible stress scenarios for various risk streams. Employee Engagement The ICAAP assesses its capital and profit impact under each of such Your Bank has an employee engagement team, which follows scenarios to help the senior management take strategic business an organised calendar of activities for the whole year. In order to

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make the working environment more engaging, HR Department welfare and wellbeing measures that are developed from time to of your Bank periodically announces activities and contests that time according to the evolving needs. Maternity Connect and help in nurturing the varied interests of employees. Every zone in FedCradle take care of the expectant/ new mothers in your Bank with your Bank with the involvement of employees, observes national much concern. FedCradle, a crèche facility for the small children, and international days of importance like International Yoga Day, started functioning at Ernakulam from the month of May 2019 World Environment Day, et al. Relief and support activities are to ensure convenience of the employees working at Ernakulam. ensured with active participation of the employees at the time of Initiatives like Talent Time and Sparsh have been helping in shaping natural calamities/disasters. These activities cement together families the future of the children of the employees and equip and prepare and communities of different profiles within the institution, work them to face the challenges of life with courage, conviction, passion, towards strengthening relationships between team members so that intellect, value orientation and the right attitude. The efforts help the the teams find the comfort of working with a sense of belonging. children acquire basic skills in adapting themselves to the constantly Major engagement activities in your Bank are rolled out aimed at changing realities of life, in developing a better personality and finally strengthening relationships among the team members and to ensure in making themselves true human beings. Odyssey, the retirement that the employees get a sense of recognition for the efforts they planning programme organised by your Bank helps to organise the have put in for the organization. Employee Volunteering in CSR has financials, do tax planning and also gives some emotional support to been conceptualised, documented and ready for implementation. the retiring employees. This will be an important programme that would engage the Your Bank has an Employee Grievance Redressal Forum which employees and would boost their morale. is headed by the Executive Director of the organisation. Internal Zonal HR officials, the extended arm of HR Department, playa Complaints Committee is constituted to address the issues related to pivotal role in reaching out to every employee in your Bank. Family Sexual Harassment for Women at the workplace. gatherings/picnics, sports/ leisure activities for employees and Resource Reskilling their families, Inter-Region sports/ games, blood donation camps, Your Bank has been focusing on Talent Reskilling Strategy through Health Awareness Talks, Medical checkups, talks/ interaction with internal grooming and external absorption in alignment with eminent personalities of the society are periodically arranged for the the business transformation. The reskilling activities at branches employees through the active and thoughtful involvement of Zonal considering the process and business transformation which the HR officials. Bank has undertaken at branches have helped to enhance the Employee Communication business per employee. The concept of Branch Light-Distribution Transparency, Accuracy, Currency and Accessibility are ensured Heavy, Relationship Model and New Business Verticals refer to the through various communications that emanate from HR Department thrust given to HR strategy in your Bank. Your Bank is achieving of your Bank. Periodic messages from CHRO stresses upon the these objectives through digitalization, centralization of activities vision of the organisation and specifically on the role of HR in and learning programs focusing on customer service, sales and the Bank towards the journey of being prominent and dominant. relationship banking. Internal Talent Pool was identified and The messages emphasise the need for having new and innovative redeployed to spearhead the activities at specific geographies as thinking, the efforts that one needs to get aligned to the theme of Wealth Management RMs, Corporate Salary RMs, Priority Banking Presence to Prominence and Prominence to Dominance and also on RMs, HNI & NRI Business Development Managers, CB & CIB RMs, how crucial it is to stay relevant and compliant. Various employee Treasury Sales RMs, Government Business RMs, CV/CE RMs, Retail wellbeing programmes are conducted which include SMILES, RMs and Fee Income RMs. External hiring was initiated for specific the employee counselling programme, the details of which are specialist leadership roles in CB & CIB, Retail Unsecured Products, periodically intimated to the employees. Business Solutions- Wholesale Banking etc. Though the relationship portfolio was strengthened with experienced personnel from the Yammer, an internal digital networking platform, has been industry being hired in supervisory roles, the Officers at field level instrumental in upward and downward communication in the were deployed from the internally available talent pool in various organisation in a regular fashion, which also helps in promoting relationship verticals / verticals formed on account of reorganizations. digital media in communication. The need for maintaining strict compliance culture is ensured through periodical publishing of the Reimagining Recruitment series, Intensify Due Diligence. FedRecruit, the AI based flagship HR -Tech Solution of your Bank Employee Welfare and Wellbeing reimagined the traditional hiring practices through digital disruption Your Bank takes care of its employees through various thoughtful encompassing Robotic Interview, Game Based Simulations,

69 Management Discussion & Analysis Chatbots, Mobile Application for real time candidate engagement trained under various training programmes during the financial etc., arguably the first of its kind in India. This new initiative has year, right from Board members to Bankmen. Out of a total 16372 resulted in measurable efficiencies in the recruitment cycle, resulting attendees, 11590 were trained focusing on compliance and in faster candidate profiling, greater stakeholder engagement, leadership skills, at their respective geographies resulting in travel employer branding, superior hiring and better analytics. The solution cost savings and man-hour savings, and also contributing to the has already received multiple awards including - Talent Accelerator - Bank’s environment/green initiatives. Learning through webinar and Country Winner at IDC Digital Transformation Awards for India 2019, MS Teams platforms, a futuristic approach of leveraging technology Innovation in Recruitment & Best Candidate Experience at Asia's Best in training enabled us to adapt to the new emerging trends. Your Employer Brand Award – 2019 and Best Use of Artificial Intelligence Bank conducted programmes and workshops like Comply and Grow, at Technology Senate Awards 2019 –Indian Express Group. Aspire, Lumineux, Xcelrate where selected employees were given special trainings based on their potential and performance. Employee and Industrial Relations The Industrial Relations scenario during the last year had been Key Numbers 2019-20 very congenial. The progressive HR practices of your Bank equip to • Against a total employee strength of 12496, training was maintain good relations with various representative bodies. Staff provided to 10038 employees in the current FY under 804 Accountability Policy of your Bank ensures that proper procedures classroom and online training programmes, (including 406 and processes are followed by employees in each and every decision employees trained at external institutes) making process thereby ensuring total compliance. • 4.35 Lakh e-learning hours generated under various mandatory and self-paced e-learning modules, which is equivalent to Talent Development and Training average 4 days of training to each employee. 10136 employees Training Division of your Bank constantly endeavours to bring participated in various e-learning courses in innovative measures for reskilling employees and to make • 10 out of 11 Board members and 48 out of 81 (59%) Senior them future ready and relevant in the VUCA (Volatile, Uncertain, Management Executives underwent Certification in IT and Cyber Complex, Ambiguous) world. With a training framework having Security at IDRBT, Hyderabad in compliance with RBI guidelines. centralised, decentralised and digital options, intensive functional • E- Learning on Cyber Security is provided to all levels of and behavioural training is given to employees, based on a Training employees from Clerks to Senior Management members (10136 need analysis conducted at the beginning of the Financial Year. An members) as part of the mandatory learning programme. Academic Council chaired by Executive Director and Chief Human Resources Officer with members drawn from various functional • Pan India training drive on Compliance (8076 employees were and business verticals, field representatives and faculty team meets trained in 363 programmes) twice in a financial year to chalk out the priority training areas for Performance Management System the Bank and to review the progress and effectiveness of training Performance Management System in your Bank helps employees stay interventions. Your Bank has a bouquet of synchronised learning focussed and ensures continuous improvements at the Individual, sessions such as instructor-led live webinars and webcasts and Group and Organizational levels. Half-yearly Performance Review recorded video tutorials focusing on skill development and building Discussions and Year-end Performance Evaluation are conducted functional expertise among employees. An exclusive in-house online and the performance of Officers against their set goals are analysed. channel was launched to serve as an internal broadcast channel for The Officers are given online feedback on their level of performance dissemination of knowledge within the organization. against the allotted goals. Employees awarded with lower grades Your Bank provides around 100+ self-paced e-learning courses for its are given opportunity to submit their grievance through an online employees, under mandatory and role-specific learning and follow up platform. An independent committee will looks into the grievances of learning completion is done through Robotic Process Automation. and arrives at a judicious decision, which is communicated to Self-paced e-learning modules of IIBF were made available to our employees concerned. employees and mandatory learning modules like Information Security, KYC, BCSBI etc. were provided for the employees for self-learning and Inspection and Audit 99% of our officers and executives and 81% of total employees have Inspection and Audit independently evaluates the adequacy, participated in various e-learning programmes. completeness, operational effectiveness and efficiency of all internal controls, risk management/governance systems and processes of Training Highlights FY20 your Bank. The Audit Committee of the Board provides direction Your Bank has B2B Learning wherein 81% of total employees was and reviews the adequacy of internal audit function including its

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reporting structure, staffing, coverage and frequency of audits. The efficiently. It focuses on the risks that are relevant to information Head of Inspection & Audit Department is designated as the “Internal assets and assesses the adequacy of controls implemented for Auditor” of the Bank and reports directly to the Audit Committee of mitigating the risks. All critical IT infrastructures in your Bank are the Board, with administrative reporting to the Executive Director & subjected to Information System Audit by information systems CFO. An executive level committee named the “Inspection Review professionals from reputed CERT-IN empanelled external audit Committee of Executives” headed by the Executive Director & CFO firms and Certified Information System Auditors (CISA) of your oversees the audit and inspection functions and reviews the audit Bank. Critical Information Systems are subjected to Vulnerability procedures and methodologies, effectiveness of audit systems, Assessment & Penetration Testing (VAPT) every quarter. In progress in completion of audits, risk rating of branches and addition to this, Information System Audit covering physical significant audit findings. The Audit & Inspection Policy, Information security of IT systems, core banking system operations, business System Audit Policy and the Internal Audit Procedure & Guidance continuity procedures and cyber security is conducted at Manual, which serve as the basic guidance documents for internal branches/ offices. During the year 2019-20, Information System audit function, were subjected to annual review during the year. The Audit was conducted in 1419 branches/ offices. review covered appropriate modifications and refinements based on • Management Audit - Management Audit in your Bank the observations made by Reserve Bank of India in the Risk Based essentially focuses on identifying the adequacy and effectiveness Supervision, other regulatory guidelines, changes in internal rules of processes adopted for decision making in various Head Office and guidelines, directions of the Audit Committee of the Board and Departments of the Bank, Zonal Offices, Large Corporate Hubs, the Board of Directors. The review and modifications ensured that National and Regional Credit Hubs, Loan Collection & Recovery audit systems and procedures are contemporary and continued to be Divisions, Currency Chests, Regional Cheque Processing Centres, an effective tool for monitoring control and compliance in your Bank. your Bank’s Subsidiary Companies etc. The feedback from management audit is relied upon by the auditee units to improve Internal Financial Controls (IFC) framework the processes, procedures and systems in place in such offices. During the year 2019-20, Management Audit was conducted in Your Bank has formulated Internal Financial Controls (IFC) 120 offices. framework, a set of guidelines policies and procedures adopted • Offsite Audit - Offsite audit is a forward looking diagnostic tool by the Bank to ensure orderly and efficient conduct of its business, to identify gaps in the systems and procedures of your Bank. as per the requirements of Companies Act, 2013. IFC framework The entire revenue audit in your Bank is undertaken through involves the identification of key business processes, risks involved offsite audit. Your Bank is leveraging on Computer Aided Audit and the controls to mitigate the risk and documentation of controls Tools (CAAT) for generating and analysing exceptions while - Risk and Control Matrix (RCMs). IFC framework further envisages conducting offsite audits. the evaluation of design and operating effectiveness of the control • Concurrent Audit - Your Bank is increasingly relying on environment periodically. Inspection & Audit is responsible for self- ‘Concurrent Audit’ as an early warning system to ensure near assessment of the Bank’s internal financial controls by testing and real-time detection of irregularities and lapses. The Concurrent validating the effectiveness of controls on an on-going basis. Audit is also used as a tool to prevent frauds in your Bank. All activities (including outsourced activities) and all entities (including During the year under review, concurrent audit was in place in subsidiary companies) of your Bank fall within the ambit of internal 277 branches and 53 offices, covering 67.07% of total advances audit. The major audits undertaken by your Bank during the financial and 57.48% of total deposits of your Bank. The offices covered year are: under concurrent audit include Treasury Department, Operations • Risk Based Internal Audit - Your Bank has leveraged on Risk Department, Loan Collection and Recovery Department, Based Internal Audit (RBIA) as a tool to assess the risks in its Zonal Credit Administration Divisions, Depository Participant, processes, operations and effectiveness of related controls. International Financial Service Center Banking Unit, National Risk Based Internal Audit conducted at branches focuses on Credit Hubs, Large Corporate Hubs, Regional Credit Hubs, prioritizing the audits and audit resources based on the level of Centralized Retail Credit Hubs, Exceptionally Large and Very inherent business risks and control risks. 894 Risk Based Internal Large Branches, Forex B Category Branches and Branches where Audits were conducted during the year. RBIA risk rating is assessed as “High”. Concurrent Audit is also • Information System Audit - Information System Audit collects introduced in all the currency chests during the year as required and evaluates evidence to determine whether the information by the Reserve Bank of India. 277 Chartered Accountants, 39 system safeguards assets, maintains data integrity and availability, retired Bank officials and 13 serving officers were engaged for achieves organisational goals effectively and consumes resources concurrent audit during the year.

71 Management Discussion & Analysis Inspection & Audit Department is manned by appropriately qualified has been conferred with the Best Performer Award by Kerala Police personnel and has a staff strength of 108 officers (as on 31.03.2020) Cyberdome. with expertise and exposure in all activities of the Bank such as branch Legal Compliance operations, credit sanction, credit monitoring, clearing operations, information technology, risk management and treasury operations. In recent times, the legal environment in the country has become very dynamic with new laws and amendments to existing laws being During the FY20, audits were undertaken at various operating units enacted at a very brisk pace. In order to cope up with these changes considering the audit universe and in tandem with the Annual Audit and ensure legal compliance, it is imperative that a robust Legal Risk Plan approved by the Audit Committee of the Board. Data on major Management process is laid down to mitigate the legal risk, which audits conducted during the year are as follows: falls under the larger umbrella of operational risk. Your Bank has a Type of Inspection/Audit Number of Audits conducted healthy compliance and legal risk management culture as well as Risk Based Internal Audit 894 processes designed to ensure legal and regulatory compliance as well Information System Audit 1419 as to detect and prevent any breaches. Legal Department of your Management Audit 120 Bank frames processes and controls that can efficiently manage and mitigate the legal risks stemming from the daily business transac- Revenue Audit 1241 tions of the Bank. Your Bank has a well laid down system, which Gold Loan Audit 1841 ensures that the documentation processes are contemporary and in Credit Audit 1547 tune with industry standards, which minimizes the menace of legal Legal Audit 372 risk and in the meantime enhances customer experience. Bi-monthly audits at Currency Chests 49 Legal Hubs are set up at all the Zones of the Bank to ensure com- Audits of outsourced agencies/ 82 pliance with local laws and render legal support to branches, managed services underwriting teams and credit administration teams. New products, The compliance position of audit comments has improved during the processes and schemes introduced by your Bank invariably undergo year 2019-20. A significant reduction of 25% is observed on year- legal vetting by the Legal Department for ensuring legal compliance over-year basis in the position of audit comments outstanding for and proper analysis of legal risks involved. The Legal Department is rectification. rendering professional and expert advice on various legal issues as- Transaction Monitoring and Fraud Prevention sociated with your Bank. With the strong objective of making your Bank a Zero Customer-Complaint Bank, strenuous efforts are being Your Bank is having a fully equipped Transaction Monitoring & made to reduce the number of suits/ complaints filed against the Fraud Prevention Department with state-of-the-art monitoring tools Bank before different courts/ consumer forums. The fortnightly working round the clock. The transactions in Core Banking, various publication of “Legal Decisions Affecting Banks” circulated by Legal online channels and those related to money laundering are monitored Department based on verdicts rendered by Supreme Court/ various by the Transaction Monitoring Team. AML Cell functioning under High Courts/ Tribunals coupled with various educational circulars the department is monitoring transactions from money laundering issued by Legal Department keep all the teams well informed on and CFT angles. Monitoring of POS acquiring and Payment Gateway legal challenges/ issues and steps to be taken to avert compliance (Cards) transactions is also under the purview of the department failures. Legal Department, a repository of statutes, updates the to have a holistic control over the transaction monitoring activities teams/offices/branches of the relevant amendments/ modifications of the Bank. The department verifies KYC modifications carried out made to statutes from time to time. Standard Loan Agreements are by the branches to uphold high level of compliance. Proactive Risk modified/ simplified from time to time to make them contemporary Manager(PRM) tool has been implemented for monitoring debit card and in tune with industry standards. Legal Department has formu- transactionsin view of the increased technology led vulnerability in lated a framework for legal compliance of local laws compiling the the market. Other special tools are also used for monitoring cyber Land and Stamp Laws, related customs and practices etc., in vogue in frauds. The card monitoring activity is taking place round the different states and also published Stamp Duty tracker for guidance clock. Transaction Monitoring Team could identify suspicious online of branches/ offices, especially for the use of those who are posted to transactions and take immediate remedial measures to prevent a branch outside their home state. The department has been extend- further occurrence. The close association with the Cyberdome of ing faculty assistance to Federal Knowledge and Development Centre Kerala Police has been instrumental in preventing many fraudulent for holding sessions on legal topics. With a view of imparting aware- transactions and making recoveries to an extent. Recognizing the ness on latest developments/ amendments in law and to strengthen proactive efforts in mitigating the Digital Banking Frauds your Bank the knowledge base of the Legal Officers of the Bank, the depart-

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ment is conducting Biennial Conference of Legal Officers where legal Marketing luminaries address the participants on contemporary topics. Legal Marketing campaigns of your Bank in FY20 were driven by the guiding Department is also conducting Panel Advocates Meet across various principle “Presence to Prominence (in Network 2) and Prominence to Regions/Zones, which helps the Bank in understanding the best prac- Dominance (in Network 1).” Marketing Department deployed various tices on the legal/documentation side and also in deriving optimum media and platforms for realization of this ambition. Marketing and services from the panel advocates. Interactions are also held through branding campaigns employing conventional and digital media, audio visual means amongst the members of Legal Department and roadshows, brand associations and many other time-tested and Legal Hubs, which helps in value addition and also resolve the hitches novel channels were run during this year. The approach adopted faced by the Legal Hubs, thereby enabling them to function effi- for events and public relation activities was aimed at reaching all ciently and contribute to the overall growth of the Bank. quarters of the country, more particularly the target geographies.

Regulatory Compliance Various campaigns with varied objectives were carried out through the year across various media. A 3600 campaign specifically Compliance Department is the guardian to the rule books of the promoting gold loans, a series of activities for increasing debit card bank and regulator. It protects the Bank from taking excessive risks spend which is expected to contribute in new customer acquisition by ensuring that the business is within the regulatory parameters. and CASA balance increase and a testimonial campaign on radio in Compliance Department of your Bank is staying abreast of the Mumbai in association with Radio City were some of the major ones. changing regulatory requirements, expectations and industry Your Bank was the lead sponsor of North East United team which practices. The Department is ensuring the best practice of represents eight states in Indian Super League in the FY20. This has compliance across various levels of your Bank. The Compliance Policy improved the national level visibility of the brand and helped reaffirm formulated by the Bank empowers the compliance function as an the Bank's focus on the north east market. adequately enabled, strengthened and independent unit. The policy It was in this FY that your Bank got listed in the Forbes Magazine’s helps to ensure the effective monitoring and co-ordination of the list of Best Over A Billion Companies from Asia Pacific region. The compliance functions in the Bank. The policy is reviewed periodically Bank became one of the top 10 banks to improve their positions in and suitable changes are made to fall in line with the guidelines the Top 500 Banking Brands list of the Banker Magazine in the year. issued by the regulators from time to time. The Compliance Manual The possibilities of social media were leveraged for brand promotion which contains the compliance functions of each and every unit in during the FY. Encouraged by the impact that digital campaigns your Bank serves as a guidance material for branches/ offices. It is created, a very conscious and extensive groundwork was done in the comprehensively updated to stay contemporary. Your Bank has a year for a confident take off in digital marketing in FY21. well laid-down procedure and online mechanism to monitor the Service Quality compliance functions. A network of compliance team is available for overseeing the compliance functions at various levels. Compliance Banking Industry has been facing tough competition from FinTechs Monitoring Officers have been nominated in all units to monitor the and increased reliance on technology-based solutions to overcome compliance functions and to develop a robust compliance culture day-to-day challenges has made it imperative to promote a culture in the Bank. Your Bank is focusing on employee education through of innovation leveraging technology, to reform existing products and circulars, frequent contact sessions, e-learning, online quizzes etc, to procedures for delivering better quality. Your Bank initiated a Quality sensitize them on the need for a strong compliance culture and also movement in 2012 with the following objectives: striving to develop a robust/ dynamic compliance culture in the Bank. • Ensure standardization of the look of branches and the feel of For all matters related to compliance, the Department is functioning customer experience as a focal point for regulators like RBI, SEBI, IRDA, etc. • Raise the performance of all branches pan-India with regards to During this financial year, the Compliance function has was further customer experience strengthened by addition of specialized external talent, imple- • Ensure uniformity and predictability across the Bank’s touch mentation of various regulations across the Bank and proactive points. detection of any compliance lapses coupled with quick remediations. • Create system, processes and procedures capable inherently of To ensure compliance with all regulatory aspects and robustness of continuous improvement the controls, the Department has strengthened the monitoring and • Ensure standardization of customer communication conducted thematic reviews. The Department has also introduced a Compliance Risk Management (CRM) framework covering regulatory Your Bank has employed a dedicated team to facilitate identification and business compliance. and implementation of process improvements, which are critical

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from a customer point of view. The team liaises with other teams convenience and delight. Your Bank, with the purpose of enhancing to evaluate various customer touch points and strives to improve customer experience and brand trust initiated opening of new various services. The team had identified and executed a total of 155 branches, capacity building of contact centre, customer satisfaction process improvements, large and small, to ensure responsive and survey, web based portal for self-service, digital products and observes frictionless customer service. To highlight a few, facility has been customer-day on 15th of every month. Branches are also sanitized and provided to customers to download email account statements and provided with fine interiors that are on par with all good banks in the various certificates relating to deposits and loans, introduction of country and standardized furnishing with spacious elegant customer nomination facility for Gold Loans, generation of SOFT PINs for setting lobbies and centralized air-conditioning. The security aspect has been ATM PIN through ATM itself, facility to avail Loan Against Deposit via given utmost importance with modern equipments like closed circuit Missed Call and SMS, improvisation of Customer Contact Centres TV, motion sensors, infra-red cameras and fire alarm systems. Your with the addition of several vernacular languages etc. Branches Bank has started online real time remote security and surveillance utilize a dedicated ticketing system for speedy processing of various of ATMs and branches. The Bank is progressively equipping its customer requests and respond to queries within predefined TAT. branches with fake note detectors, note sorting machines and Your Bank has also implemented RBI guidelines on limiting customers' currency authenticating machines in compliance with regulatory liability for unauthorized electronic banking transactions, which will guidelines. Your Bank has installed 1937 ATMs/Cash Recyclers which help to minimize customers’ liability in the event of unauthorized will enable customers to withdraw/ deposit cash in their account electronic banking transactions and reporting of such transactions 24 X 7. Your Bank has installed solar power plant at Varapuzha can be done through Branch, Call Center, Email, Website and SMS. and Kochi branches as part of green planet initiatives. The Bank is A dedicated team ensures harmonization of TAT with regard to this. focussing on ensuring excellence in operations, service delivery with least gaps based on customer feedback and strives to maintain high Customer Grievance level of customer satisfaction along with reduced count of customer a No. of complaints pending at the beginning of the year 1354 complaints through an efficient redressal mechanism. b No. of complaints received during the year 200249 Customer Satisfaction Survey c No. of complaints redressed during the year 199911 It is important for the Bank to ensure a robust process of evaluating d No. of complaints pending at the end of the year. 1692 customer satisfaction. A customer survey was conducted across Awards passed by the Banking Ombudsman selected sample of customers during the FY20. The whole survey was conducted via face to face personal interviews using structured a No. of unimplemented awards at the beginning of the 1 questionnaires. Assessment tool used for the survey was NPS year (Net Promoter Score) based evaluation. NPS identifies the level of b No. of Awards passed by the Banking Ombudsman 1 advocates and critics within the customer base. Objective of the during the year survey was to assess the satisfaction level among the customers for c No. of Awards implemented during the year Nil selected parameters, recommendation for the Bank by customers d No. of unimplemented Awards at the end of the year. 2@ vis-a-vis the competition, involvement of customers with the Bank, @ One Award pending from 2012. Appeal rejected by Appellate customer perception about the customer centricity of the Bank. With Authority, case filed in high court and stay obtained. a score of 73, NPS for Federal Bank is high and ranks well amongst similar organizations in BFSI sector. Brand image and trust factors are @ One Award pending in 2020. Appeal filed by Bank is still pending identified as the key strengths of the Bank. This is followed by Mobile at Appellate authority Banking, ATM, Branch and Internet Banking. Based on the report, the 1692 complaints outstanding were received during last two weeks Bank has developed a set of key actions aligned to specific targets of the FY. Out of the complaints 3.5% are process related 0.4% are for improving the customer satisfaction level in all parameters, loan related, 91.12% are ATM/ CDM/ POS related, 4.4% are deposit particularly in locations where the Bank has challenges. related, 0.29% are related to ombudsman complaints and 0.29% are related to various other areas. Your Bank is having a process of root Strategic Planning cause analysis of the complaints leading to fine tuning of process It is said that, a well thought-out and clearly defined business goal, and bringing in corrections wherever necessary. implemented with intentional actions, and combined with effective mind-set, will create desired outcomes. With this in mind, your Customer Delight Bank’s Corporate Planning Department coordinates diverse functions Your Bank is always keen on relationship building, customer including planning and budgeting, performance management

75 Management Discussion & Analysis and measurement, strategic cost management, business analytics For any organization to survive in this complex business environment, and management information systems. ‘Branch Light Distribution it needs to know What, Why, and How to cut costs constructively. Heavy’ approach followed by the Bank ensures a healthy co- The Department plays a key role in aligning the cost structure of the existence of the branch channel consisting of 1263 Branches, Bank by developing clear cross-organizational cost agenda, making 1937 ATMs/Cash Recyclers, with alternate distribution channels like deliberate cost choices from the front line to the back office, focus relationship managers, field sales teams, digital acquisition and, on investing in differentiating capabilities funded by improvements thereby leveraging multiple engines for customer acquisition and in the cost structure brought in through protecting the ‘good costs’ engagement, embracing its goals with focus, quality, granularity, and pruning the ‘bad costs’ thereby enabling growth in the longer regularity and sustainability. The department, through its various term. initiatives, brings synergy between the distribution channels to deliver desired results. Corporate Social Responsibility MIS wing, a multi-functionary cell under Corporate Planning Major CSR Projects undertaken during FY 20 Department, coordinates comprehensive reporting and automation, The Corporate Social Responsibility activities of the Bank touche ensuring data quality, accuracy and timeliness of information for a wider footprint through areas like Health, Education, Women management decision making as its prime objectives. The agile empowerment, Environment sustainability and other activities reporting of MIS enables branches and offices to align and organize permitted by the Schedule VII of the Companies Act, 2013. Federal themselves to the set goals. The automated reports/ insights to Bank Hormis Memorial Foundation was set up by the Bank in 1996 individual business units, by making use of cutting-edge business in the fond memory of the Bank's founder Late Shri. K P Hormis. The intelligence tools, enable the users slice and dice data, helping them foundation and its activities were inaugurated by the then Finance to derive meaningful insights and empowering them to take informed Minister Shri. P Chidambaram at Ernakulam on 18.10.1996. CSR business decisions. The Regulatory Reporting Cell, which functions projects are executed under the Hormis Memorial Foundation and under MIS wing, is a specialized team that deals with regulatory the foundation is acting as a special vehicle for implementation of reporting of your Bank, ensures integrated and prompt reporting to CSR activities of the Bank. the regulators. The Bank also has a Quality Assurance Cell for MIS, Major CSR projects undertaken during FY 20 are: that ensures the quality and consistency of data captured in the Bank’s systems and validates the critical reports submitted by MIS to Donation to Army Welfare Fund various stakeholders. In the background of Phulwama Attack, as a mark of respect to our Under the watch of a core Analytics team, your Bank is consistently brave soldiers, the Bank had announced donation of `1.00 for each enhancing its analytical capabilities to harness optimally the transaction done through the Bank's Retail Digital Channels during potential of huge data resource available and stay abreast with latest the period from 01.03.2019 to 31.03.2019 to Army Welfare Fund. developments in the analytics field. Capitalizing on the available The donation was made to Army Battle Casualties Welfare Fund on customer, transactional and latent data like interactions, etc. and 22.08.2019. with the use of latest tools and techniques, the team is aligned Federal Bank Hormis Memorial Foundation Scholarships with the principal objective of enhancing the customer experience The Foundation is providing scholarships to the deserving students and infusion of customer delight at each step by ensuring effective for pursuing professional courses from the year 2005-06. From FY 20, customer centricity fostering deeper relationships with maximized additional Scholarships added for the benefit of wards of martyred profitability. The analytical deliverables in the form of relevant Armed Forces Personnel. The Bank had received one application quality actionable insights delivered in time to stakeholders at each under the said category. level are derived not only from internal data but also by leveraging During the year 2019-20, the trust offered assistance to 113 external data sources to ensure that right product is offered to the meritorious students, 20 students from various streams – Medicine, right customer at the right time using right channel warranting the Engineering, BSc (Agri), MBA and 32 students from BSc Nursing. customer wallet share to always point north. Augmenting informed decision-making process to capitalize on new opportunities as well Federal Skill Academies as gearing up with optimal response to stressful times like Covid-19 As part of the Corporate Social Responsibility initiatives, the Bank is duly facilitated by the power of analytics and robust analytical started Federal Skill Academy at Kochi on Founder's Day-2015, 18th frameworks in your Bank, fuelled by consistent look-out and tapping of October 2015.The social initiative was launched to give wings to into relevant information at both micro and macro levels to carve the youth belonging to the underprivileged section of the society. newer opportunities and avenues for growth.

76 Annual Report 2019-20

The aim of the project is to impart skill training to unemployed and students, right from the block level upwards, to showcase their marginalized youth to empower, mentor and assist them to upgrade reasoning talents that will take them forward in the path of self- their skills for improved employability, increased efficiency and development. The initiative was conducted in association with media career growth. All expenses are borne by the Bank. For the smooth partners- Times of India, Mathrubhumi Printing & Publishing Co, implementation of the project, the Bank joined hands with M/s SB Dainik Bhaskar and Hindustan Times. Global Educational Resources Pvt Ltd as the implementing partner. Grand finales of the Speak for India debating competition FY20 On successful achievement of the objective of the first Academy, the of all states except Gujarat and New Delhi have been conducted. Bank decided to expand the operations of the Federal Skill Academy Grand finales of Speak for India –Gujarat and New Delhi, which were to three more states, ie, at Coimbatore (2016), Kolhapur (2018) and scheduled in March 2020, had to be postponed due to the Covid-19 Karnal (2019).The number of trainees has grown rapidly and it has lockdown imposed by the Government. created livelihood for the youth as well as contributed to the national skilling initiative CSR Activities - Founder's Day The courses offered at present are Heat Ventilation Air Conditioning Every year the Bank celebrates 18th October, remembering the (HVAC), RAC (Refrigeration and Air Conditioning), GMAW(Gas Metal birthday of visionary founder as CSR Day of the Bank. The Bank Arc Welding), CNC Machine Operator cum Programmer, Automotive conducts various CSR activities through the branches Pan India to Service Technician, Plumber General, Solar Photovoltaic Service commemorate his vision. Technician, Two Wheeler Service Technician, Solar Electric system More than 475 branches from all the nine zones conducted various installer & Service Provider, Electronics Service Technician, BPO Non CSR activities, which helped for the welfare of the society in general. voice, Financial Accounting with Tally, Programmable Logic Control, Sponsoring Trauma Care Units- Support to Sansad Mobile Machinist, Print & pack technician. Swasthya Seva, Himachal Pradesh During FY20, total admission in all centres counts to 1190, out of Sansad Mobile Swasthya (SMS) is a public healthcare programme which 810 students completed the training programme, which started by Sri Anurag Singh Thakur, MP from Himachal Pradesh includes Accounts & Tally Programme conducted exclusively for 35 (presently Minister of State for Finance, Govt of India). Sansad women aspirants from Idukki District. The Bank has also provided Mobile Swasthya comprises of Mobile Medical Units (MMUs) which boarding and lodging to the group. About 85% of this batch got ply to remote rural villages in Hamirpur Parliamentary Constituency placement in various firms. of Himachal Pradesh. This programme was started on 14.04.2018, on the birth anniversary of Dr B R Ambedkar. Within a short span 2019-20 Performance Academy Wise of time, a fleet of 19 Mobile Medical Units are plying in Hamirpur Sl Academy Total Skilled Placed Un- Wait- Place- Parliamentary constituency, which covers 5 districts, 800 Panchayaths No Ad- der- ing for ment% mis- going Place- and 13000 beneficiaries. sion Train- ment ing Promoting Differently abled -Support to SCTIMST (Sree Chithira 1 Kochi 217 148 130 37 0 87.83 Thirunal Institute for Medical Sciences and Technology) 2 Coimbatore 389 333 286 56 0 85.88 In 2017, Federal Bank joined hands with Sree Chithira Thirunal 3 Kolhapur 324 243 200 54 27 82.30 Institute for Medical Science & Technology for setting up a 4 Karnal 260 86 69 80 0 80.23 Comprehensive Centre for Cognitive Rehabilitation of Children with

Total 1190 810 685 227 27 Neuro disorders. The center aims to provide high quality state of the art and continuing care for children with Neuro Development Disorders and providing adequate support to the child and family. Federal Bank Speak for India 2019-20– Youth engagement initiative In phase I, it included setting up of sensory integration room, In the year 2014-15, Federal Bank launched a state-wide student individual therapy rooms and paediatric physiotherapy unit at debating competition in Kerala under the auspices of Federal Bank SCTIMST and the second phase envisages, a sensory park and sensory Hormis Memorial Foundation. This Financial year, it covered seven room at NISH. The first Phase of the project is completed which states– Kerala, Karnataka, Maharashtra, Tamil Nadu, West Bengal, includes one-to-one therapy rooms, soft play area for occupational Gujarat and New Delhi under this mass youth engagement program. therapy and a paediatric gym. In the phase II (second year) of the The initiative was attended by more than 1,80,000 students from project, sensory park and sensory room will be set up at National seven states. The contest provided a platform for the college Institute of Speech and Hearing (NISH), Thiruvananthapuram, the work of which already started.

77 Management Discussion & Analysis Promoting the Differently Abled- Various Projects Asian Regional Forum against Drugs at Kochi. The Foundation works Apart from support to SCTIMST, the Bank extended support for for creating an awareness against Drugs and Narcotics abuse among various projects, which will benefit differently abled children and children. persons Providing safe drinking water-Support to Thrissur Municipal Corporation • Academy of Magical Sciences, Thiruvananthapuram for setting up different art centre for differently abled children. Thrissur Municipal Corporation (TMC) is the 5th biggest Corporation in the state of Kerala. TMC comprises of 52 divisions, 67000 • Adarsh Charitable Trust for procuring therapy materials, and households and is having a population of 316000 (approximately). teaching materials for differently abled children. The Corporation is the only local self-government institution in the • Raksha Society, Kochi, is providing free education and vocational State of Kerala having license to distribute Electricity and water to training facilities to children and young adults with Neuro consumers residing under the erstwhile municipal limits of Thrissur developmental disorders like, Cerebral palsy, Autism, Learning, Corporation. intellectual and other multiple disabilities, belonging to the Thrissur Corporation has approved a project for providing drinking lower strata of the Society. The Bank supported the society to water connections to all households falling under its jurisdiction, as upgrade the bakery unit run by the society and to purchase a multipurpose vehicle to be used for outreach programme there is shortage of drinking water in TMC area during peak summer. conducted by the society. Corporation is supplying drinking water to the areas where there is scarcity of drinking water through tanker Lorries in summer. As part • Support to Developmental Disability Regional Office, Tuticorin of the said project, Thrissur Corporation is planning to provide free for providing 10 retrofitted petrol scooters to differently abled water connection to the poor and BPL families by spending ` 5,000/- persons. as subsidy. The Bank supported the project by sponsoring drinking • Support to Department of Social Security & Empowerment of water connections to 3000 BPL families. Persons with Disabilities, Govt of Odisha for purchasing Yamaha In the wake of Covid-19, the project is yet to be implemented. battery operated Golf cart seater for transporting differently abled persons visiting the Centre. Welfare & Poverty Alleviation • Support to Bai Jerbai Wadia Hospital, Parel, Mumbai for • Support to Sree Narayana Sevika Sangham for construction of developing infrastructure facilities of Counselling Centre for dormitory building for the use of 100 girl children differently abled children • Support to YMCA, Alangad for completion of houses for four • Support to Social Action Forum, Irinjalakuda for setting up a economically underprivileged families, residing in the suburbs of Vocational Training Centre at Asha Nilayam Special School, Aluva, owning 3 to 4 cents of land and structure works of the Kottanelloor houses have already completed. • Support to We Care Centre, Kanjirappilly for purchasing paper • Support to Warrier Foundation– for Housing Project-Asritha bag making machine as part of their Livelihood Enhancing Mandiram- implemented at Mazhuvannur, Ernakulam District- projects for differently abled persons. for construction of 9 houses for widows with girl child, who are economically weaker. Health Care- Various Projects • Support to Rotary Club, Cochin Central, for construction of • Support to Ambedkar Memorial District Cancer Centre, three houses for the economically underprivileged and the flood Manathavady, Wayanad for purchasing a brand new 125 KVA victims of North Paravur area radiator cooled DG set. • Support to Good Hope Relief Settlement for maintenance works • Support to Cancer Patients in Ernakulam General Hospital for of the Destitute Home and for setting up Biogas plant at the meeting their expenses incurred for Chemo medicines Home. • Support to Little Flower Hospital, Angamaly for setting up a Modern Intensive Care Unit (ICU) Malayala Manorama- Padippura Prathibha Sangamam • Support to Mar Augustine Golden Jubilee Hospital (MAGJ The Bank provided support to Malayala Manorama “Padippura” for Hospital), Mookkannur for installing Blood Component Separa- awarding Merit Medal and Certificate to felicitate the students who tion Unit at their Blood Bank. secures A+ in all subjects in SSLC Exam 2018-19 during May 2019 in all districts of Kerala. This is a state-wide programme and merit Prevention of Drugs & Narcotics Abuse among children medals were given to 32000 students at meeting conducted in all The Bank had supported Fourth Wave Foundation, for organizing districts of Kerala

78 Annual Report 2019-20

Promoting Women Empowerment Project “Swayam Sakthi” mapuri for renovation of traditional ponds- The Onthiampatty The Bank is supporting Drishtikona Consultancy and Program Lake in MenasiPanchayath, Pappireddipatti Block, Dharmapuri Management Services Pvt Ltd partnering with Himalayan Social District Institute for the above project. d) Support to Thiruverkadu Municipality for construction of 100 The Project envisages enabling Girl Children who have not completed toilets for the houses in and around Thiruverkadu Municipality their education by providing them ‘Bridge Education’. Regular e) Support to Poonamallee Municipality for construction of 50 classes will be conducted to impart knowledge and thereby ensuring toilets in houses in and around the Municipality. enrolment of girls in their age appropriate grades in regular schools. Rural Development Projects The project is targeting age groups 11-14 years belonging to weaker Your Bank had embarked on a mission of digitization of Villages sections/BPL families who have discontinued their education or have which started with Mookkannur Village in Kerala and Nilavarapetty never attended school due to various socio-economic problems. in Tamilnadu. Remedial Education is given to them for fulfilling their aspirations and dreams for a better livelihood and career prospects by continuing This year, the Bank started with Mankol Village in Ahmedabad, their study in a regular school. Venmony Village in Alappuzha, Gudha Village,in Haryana and Mardhala, near Kadaba, Mangalore. The process has already com- This is a one year programme and is being implemented at Madawala, menced in all the four villages. The digitization and village adoption Panchkula District of Haryana. programme in villages Mankol, Gudha and Venmony were nearing Support to Light of Life Trust completion by March, but culmination got deferred due to Covid-19 Support to Light of Life Trust, Mumbai for the program, ‘Anando’ a outbreak. program envisaged for children who are school dropouts belonging Disaster Relief to the age group 11-18 years as to help them continue their education During August 2019, heavy southwest monsoon created enormous thus enabling them to lead a life of self-sufficiency and dignity. The havoc in different parts of our country, claiming lives, damaging program was implemented at Worli Centre for 56 students during houses and destroying crops. Gujarat, Kerala, Karnataka and the academic year 2019-20. Maharashtra were severely affected. Promoting Environment Sustainability & Swachh Bharat In Kerala, Malappuram and Wayanad Districts, were the worst hit SEED – Student Empowerment for Environment Development due to landslides and heavy rain. Maharashtra is also one of the To build awareness amongst student fraternity to conserve the worst affected states due to the incessant rains and nearly 4.48 lakh earth’s natural resources, Federal Bank has been partnering with people were evacuated mostly from Kolhapur District. Mathrubhumi for SEED Programme since 2012. SEED (Student As a token of our support to the flood affected people of these Empowerment for Environmental Development) is an initiative aimed states, the Bank sanctioned various relief measures as given below: at spreading the message of ecological conservation. Schools carry • The Bank had given delegation to Zones- Kozhikode, Kottayam, out simple but effective steps in environment protection like Planting Ernakulam, Thiruvananthapuram and Mumbai for undertaking and Protection of saplings, Agricultural Activities, Bio-diversity flood relief measures conservation, Energy Conservation, Conservation of Water bodies, Cleanliness and protection of public health, Reduce, Reuse and • Construction of 34 houses at Edakkara, Malappuram for flood Recycle Plastic waste and intervention in local area environmental affected SC/ST families in land allotted by the Government. issues through SEED Police. The Bank has been supporting this noble • The floods that happened in August 2019 affected Kolhapur cause for the past seven years. District of Maharashtra State, claiming lives, damaging houses and destroying crops. The Bank selected two villages-Bastwad Support to Various District Administration Bodies and Rajapurwadi in Kolhapur District for various relief activities The Bank provided support to various projects of different which include construction of 80 houses, schools, providing administrations milch cows and various other relief activities. a) Support to the District Administration, Ernakulam for District The above projects at Malappuram and Kolhapur are nearing Collectors Scheme of providing RO drinking water facility in 36 completion. government schools, which will also benefit the General Public • Support to Paradip Municipality for repair, reconstruction and b) Support to Tirunelveli Corporation, Chennai for purchasing renovation of their Aahar Kendra at Athabanki, Paradip, Orissa, Tipper Lorries for the Corporation for solid waste management which was destroyed during the Fani Cyclone c) Support to District Rural Development Authority (DRDA), Dhar-

79 Management Discussion & Analysis Disaster Management –Covid-19 • As directed by the RBI, the Bank is submitting quarterly Proforma During March, with the onset of the pandemic Covid-19, the Bank Ind AS financial statements to the RBI within the stipulated provided various relief measures as given below: timeline. • Support to Kerala Social Security Mission (KSSM) by providing • The Training the employees is provided in a phased manner. Kiosks and water taps at public spots The key impact areas during the implementation of Ind AS for the • Support to Kolkata Police Personnel by supplying masks, gloves Bank includes effective interest rate accounting, Fair valuation inputs, and hand sanitizers methodologies and assumptions, Specific valuation considerations in many instruments, Expected Credit losses, employee stock options • Support to Delhi Traffic Police Personnel, Auto Drivers, E rickshaw and implementation of technology systems. pullers of Delhi for providing 1000 medical kits consisting of 200ML hand sanitisers,4 surgical face masks and 4 hand gloves for 1000 families

Promoting Sports & Culture • As a measure for promoting football amongst the underprivileged youth of North East Region- support was given to M/s North East Football Foundation for the running of their football academy during the year 2019-20 • Support to Redeem FC Kochi for running Football Coaching Centres at Kakkanad and Aluva for one year. The expenses include salary and accommodation of coaches, monthly rent of ground taken on lease, cost of uniforms, T shirts, Kit bags etc.

Ind AS Implementation Reserve Bank of India (RBI) through press release RBI/2018-2019/146 DBR.BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019 updated all scheduled commercial Banks that legislative amendments recommended by the RBI are under consideration of the Government of India. Accordingly, RBI had decided to defer the implementation of Ind AS till further notice. Even though RBI has deferred the implementation, the Bank is gearing itself up to make all the systems in place to facilitate the Proforma submission to RBI. With respect to the various instructions from the Ministry of Corporate Affairs and Reserve Bank of India (RBI), the actions taken by the Bank are summarized as follows: • A steering committee was formed by MD & CEO with ED & CFO as its Chairman with members from all cross-functional depart- ments. There are various working groups formed among the concerned departments, which in turn reports to the steering committee on a fortnightly basis and discuss the progress made. • The implementation of the IT solution procured to automate the computation of Expected Credit Losses (ECL), Effective Interest Rate, Fair valuation and other accounting changes required under Ind AS is in very advanced stages. • The Bank also has assessed necessary changes required in existing IT architecture and other processes to enable smooth transition to Ind AS. • A quarterly progress report on the status of Ind AS implemen- tation in the Bank is presented to the Audit Committee of the Board.

80 Annual Report 2019-20

81 Corporate Governance Report

In terms of Regulation 34(3) read with Part C of Schedule Requirements) Regulations, 2015 (the Listing Regulations), the V to SEBI (Listing Obligations and Disclosure Requirements) guidelines issued by the Reserve Bank of India (RBI) in this regard and Regulations, 2015 (Listing Regulations), a Report on Corporate Governance for the year ended March 31, 2020 is presented the Articles of Association of the Bank. The Board of Directors of the below: Bank has an optimum combination of Executive and Non-Executive Corporate Governance encompasses a set of systems and practices Directors with three Woman Directors and more than fifty per cent to ensure that the Bank’s affairs are being managed in a manner of the Board of Directors comprises of Non-Executive Independent which ensures accountability, transparency and fairness in all Directors. The Chairperson of the Board is a Non- Executive transactions in the widest sense. Bank maximizes shareholders value Independent Director. The Board of Directors/Committees of Board while safeguarding and promoting the interest of stakeholders and periodically reviews compliance reports pertaining to major laws maintains a steadfast commitment to ethics and code of conduct. applicable to the Bank. All statutory and other matters of significance Besides adhering to the prescribed corporate governance practices as including information as mentioned in Part A of Schedule II to per Regulation 4(2) read with Chapter IV of the Listing Regulations, the Listing Regulations are informed to the Board to enable it to the Bank voluntarily governs itself as per highest standards of ethical discharge its responsibility of strategic supervision of the Bank. and responsible conduct of business in all facets of its operations A. Composition of Board of Directors and in all interactions with its stakeholders, including shareholders, As on March 31, 2020, Bank’s Board consists of 11 members. Besides employees, customers and the community at large. the Chairperson, a Non-Executive Independent Woman Director, Corporate Objective of the Bank the Board comprises of seven Non-Executive Independent Directors Good corporate governance practices help support and strengthen and three Executive Directors including two Women Directors corporate actions aimed at achieving the corporate objective. The representing diverse combination of professionalism, knowledge, Bank’s principal corporate objective, like that of any corporate expertise and experience as relevant for the banking business. None business entity, is to perpetuate its business while protecting and of the Directors of the Bank are related inter-se, in terms of Section enhancing, over the long term, the value of the investments of its 2(77) of the Companies Act, 2013, including Rules thereunder. The shareholders in the Bank. Board has confirmed the veracity of declaration of Independence The Code of Corporate Governance of the Bank was last amended provided by the Independent Directors and has taken the same on in the Board Meeting held on March 13, 2020 keeping in line with record. In the opinion of the Board, all the Independent Directors the provisions of Companies Act, 2013 and SEBI (Listing Obligations fulfill the conditions as specified in the Listing Regulations and are and Disclosure Requirements) Regulations, 2015 and the same is independent of the Management. Pursuant to the notification of the available on the website of the Bank. Ministry of Corporate Affairs dated October 22, 2019, an online data bank for the independent directors ("Data Bank") has been rolled out Board of Directors by the Indian Institute of Corporate Affairs and all the Independent The composition of the Board of Directors is governed under the Directors of the Bank had registered themselves in the Data Bank. The relevant provisions of the Companies Act, 2013, the relevant Rules profile of Directors can be found at our website at www.federalbank. made thereunder, the Banking Regulation Act, 1949, the Securities co.in at web link https://www.federalbank.co.in/key-personnel. The and Exchange Board of India (Listing Obligations and Disclosure classification of the members of the Board is as follows;

82 Annual Report 2019-20

Name of the Directors Category Number of Directors % to total number of Directors Ms. Grace Koshie, Chairperson Ms. Shubhalakshmi Panse Mr. C Balagopal Mr. A P Hota Non - Executive Independent Directors 8 73 Mr. K Balakrishnan Mr. Siddhartha Sengupta Mr. Manoj Fadnis Mr. Sudarshan Sen Mr. Shyam Srinivasan Mr. Ashutosh Khajuria Executive Directors 3 27 Ms. Shalini Warrier Total 11 100

During the year, Ms. Shalini Warrier (DIN: 08257526) was appointed Ms. Grace Koshie (DIN:06765216) was appointed as Part Time as an Additional Executive Director on the Board of the Bank effective Chairperson of the Bank effective from November 07, 2019 till from January 15, 2020. Mr. Sudarshan Sen (DIN: 03570051) was November 21, 2021 with the approval of RBI vide its letter DoR Appt. appointed as an Additional Independent Director on the Board of No. 3560/08.38.001/2019-20 dated November 07, 2019. the Bank effective from February 11, 2020. Mr. Siddhartha Sengupta Mr. Shyam Srinivasan (DIN: 02274773), Managing Director & (DIN: 08467648) and Mr. Manoj Fadnis (DIN: 01087055) were Chief Executive Officer of the Bank was re-appointed as Managing appointed as Additional Non- Executive Independent Directors on Director and Chief Executive Officer of the Bank for a period the Board of the Bank effective from June 13, 2019. The shareholders of one year effective from September 23, 2019 to September in the 88th Annual General Meeting held on July 25, 2019 approved 22, 2020 with the approval of RBI vide its letter DBR Appt. No. the appointment of Mr. Siddhartha Sengupta and Mr. Manoj Fadnis 2280/08.38.001/2019-20 dated September 21, 2019. as Independent Directors of the Bank for a period of five (5) years Mr. Ashutosh Khajuria (DIN: 05154975 ), Executive Director with effect from the date of their appointment by the Board. and Chief Financial Officer was re-appointed as the Executive The Board of Directors had appointed Mr. K Balakrishnan Director of the Bank effective from January 28, 2020 to March (DIN: 00034031) as an Additional Independent Director 31, 2021 with the approval of RBI vide its letter DoR Appt. No. effective from September 25, 2018. The shareholders of the 5116/08.38.0012019-20 dated December 27, 2019. Bank at the 88th Annual General Meeting held on July 25, 2019 approved the appointment of Mr. K Balakrishnan as Independent B. No. of Board Meetings Director of the Bank for a period of three (3) years with effect from During the Financial Year 2019-20, the Board of Directors met the date of his appointment by the Board. The shareholders in the fourteen times on April 16, 2019, May 04, 2019, May 23, 2019, 88th Annual General Meeting held on July 25, 2019 approved the June 13, 2019, July 16, 2020, August 31, 2019, October 16, re-appointment of Mr. C Balagopal, as Independent Director of the 2019, November 16, 2019, December 24, 2019, December 30, Bank with effect from August 11, 2019 for a period of five (5) years 2019, January 20, 2020, February 25, 2020, March 13, 2020 or till the date of his retirement whichever is earlier. and March 24, 2020. The maximum gap between any two Mr. Dilip Sadarangani (DlN- 06610897), Part Time Chairman and consecutive meetings was less than one hundred and twenty Independent Director of the Bank, retired from the Directorship of days, as stipulated under the Companies Act, 2013, Regulation the Bank effective from September 08, 2019, upon completion of 17 of the SEBI (Listing Obligations & Disclosure Requirements) 70 years of age, in accordance with the regulatory requirements Regulations, 2015 and Secretarial Standards. In case of any of Reserve Bank of India (RBI). Further, CA Nilesh S Vikamsey exigency/ emergency, resolutions are also passed by circulation. (DIN:00031213), Independent Director, retired from the Bank C. Details of Directors Attendance, Shareholding and other effective from June 24, 2019, upon completing his eight-year Directorships/ Committee memberships term as a Director on the Board of the Bank, in accordance Necessary quorum was present in all the Board meetings. Further, with the regulatory requirements of RBI. The Board placed in its as mandated by Regulation 26 of the SEBI (Listing Obligations & appreciation for the valuable contributions made by them for the Disclosure Requirements) Regulations, 2015, none of the Directors overall development of the Bank. is a member of more than ten Board level Committees (considering

83 Corporate Governance memberships in only Audit Committee and Stakeholders’ all Directors have informed about their Directorships, Committee Relationship Committee) or Chairman of more than five Committees Memberships/Chairmanships including any changes in their positions across all public limited Companies (whether listed or unlisted) in during the year. None of the Directors have any business relationship which he/she is a Director. No Director of the Bank serves as Director with the Bank nor have received any loans and advances from or as Independent Director in more than seven listed Companies. the Bank during the year. The Bank has not issued any convertible The Whole Time Directors of the Bank are not holding, the position instruments; hence, disclosure in this respect is not applicable. of Independent Director in any other listed Companies. Further,

Relevant details of the Board of Directors of the Bank as on March 31, 2020 are given below:

Attendance No. of other Directorships and Committee Shareholding in the Attendance Particulars at the last Memberships /Chairmanships held# Bank (equity shares AGM held on of 2/- each) Name of the Director No. of Board Meetings 25.07. Other Committee Committee 2019 Directorships Memberships Chairmanships Held Attended Ms. Grace Koshie 14 14 Yes 2 1 1 Nil Ms. Shubhalakshmi Panse 14 12 Yes 4 1 3 Nil Mr. C Balagopal 14 12 Yes 1 Nil Nil Nil Mr. A P Hota 14 13 No 3 2 Nil Nil Mr. K Balakrishnan 14 09 Yes 1 1 Nil 60,500 equity shares Mr. Siddhartha Sengupta1 14 11 Yes 3 2 1 Nil Mr. Manoj Fadnis1 14 11 Yes 4 1 4 Nil Mr. Sudarshan Sen2 14 03 NA Nil Nil Nil Nil Mr. Shyam Srinivasan 14 14 Yes 2 Nil Nil 7,98,595 equity shares Mr. Ashutosh Khajuria 14 13 Yes 1 1 Nil 2,52,000 equity shares Ms. Shalini Warrier3 14 04 NA 1 Nil Nil Nil Mr. Dilip G Sadarangani 14 06 Yes Retired on September 08, 2019, upon completion of 70 years of age CA Nilesh S Vikamsey 14 04 NA Retired effective from June 24,, 2019, upon completing his eight-year term as a Director on the Board of the Bank

1Mr. Siddhartha Sengupta and Mr. Manoj Fadnis joined as Independent Directors of the Bank w.e.f June 13, 2019. 2Mr. Sudarshan Sen joined as Additional Director (Independent) of the Bank w.e.f February 11, 2020. 3Ms. Shalini Warrier joined as Additional Director (Executive) of the Bank w.e.f January 15, 2020 Note: 1. # For the purpose of considering the limit of the directorships, all Public Limited Companies, whether listed or not, are included. Private Limited Companies, Foreign Companies and Com- panies under Section 8 of the Companies Act, 2013 are excluded. 2. Includes only Memberships of the Audit Committee and Stakeholders Relationship Committee in Public Limited Companies (listed and unlisted). The Chairmanship/s if any, held by Directors in any Committees of other companies are not counted again in the membership column. Details of other Board Directorships are separately mentioned in Annexure 1 to this report.

D. List of core Skills/ Experience/Competencies identified by number of members of the Board of Directors of a banking company the Board shall comprise of persons who shall have special knowledge or The Bank considers the principles relating to fit and proper norms practical experience, in respect of one or more of the matters, namely: as prescribed by the RBI and confirms that each Director is also in Accountancy, Agriculture and rural economy, Banking, Co-operation, compliance with the norms as prescribed by the Ministry of Corporate Information Technology, Infrastructure sector, Human resources, Core Affairs and the Securities and Exchange Board of India (SEBI) under industries, Economics, Finance, Small – Scale Industry, Law, Payment applicable laws, whilst determining the composition of its Board. & settlement systems, Risk management, Business Management. The Section 10A (2) of the Banking Regulation Act, 1949 read with RBI Bank is in compliance with the above requirements as the Directors notification no. DBR. Appt. BC. No.38/29.39.001/ 2016-17 dated of the Bank has rich experience and specialized knowledge in the said November 24, 2016, requires that not less than 51% of the total areas of relevance to the Bank.

84 Annual Report 2019-20

The Bank has identified above Skills/Expertise/Competencies as required to be possessed by its Board, in the context of its businesses and the sectors, for it to function effectively. The details of the names of the Directors possessing the required Skills/Expertise/Competencies are detailed as under:

Sl no. Name of the Director Special Knowledge / Practical Experience 1 Ms. Grace Koshie Banking | Economics | Governance| Compliance 2 Ms. Shubhalakshmi Panse Banking | Economics | Small Scale Industries 3 Mr. C Balagopal Economics | Agriculture | Rural Economy 4 Mr. A P Hota Banking | Information Technology | Payment and Settlement Systems 5 Mr. K Balakrishnan Investment Banking | Finance 6 Mr. Siddhartha Sengupta Small Scale Industries | Risk Management | Banking 7 Mr. Manoj Fadnis Finance | Accountancy | Management 8 Mr. Sudarshan Sen Banking | Finance | Risk Management 9 Mr. Shyam Srinivasan Banking | Retail Lending | Wealth Management | SME Banking 10 Mr. Ashutosh Khajuria Banking | Treasury | Investment 11 Ms. Shalini Warrier Banking | Information Technology

E. Board Procedure F. Remuneration to Directors The Board has complete access to all information with the Bank. All During the year Mr. Shyam Srinivasan, Managing Director & Chief Board meetings are governed by a structured agenda which is backed Executive Officer, was paid ` 2,26,60,615.11 (gross), Mr. Ashutosh by comprehensive background information. The Board/ Committee Khajuria, Executive Director and Chief Financial Officer was paid agenda and notes thereof are sent in advance to the Directors to `1,20,25,382.71 (gross) (excluding value of stock options exercised enable them to read and comprehend the matters to be dealt with during the year) and Ms. Shalini Warrier, Additional Executive and seek further information / clarification. The Board/ Committee Director & Chief Operating Officer was paid` 1,06,24,066.18 (gross) agenda and notes are uploaded on the Bank’s e-meeting portal in accordance with the terms and conditions approved by Reserve wherein the Directors can review the same in a secure environment Bank of India. and at their convenience. Video conferencing facility is provided to The Non-Executive Independent Directors, except Chairman of the facilitate Directors to participate in the meetings. The members of Board, are paid only sitting fees for attending every meeting of the the Board exercise due diligence in performance of their functions as Board/ Committees of the Board within the limits as prescribed Directors of the Bank and follow highest degree of business ethics, under the Companies Act, 2013. For Chairman, besides honorarium transparent practices and code of good governance amidst cordial as permissible under Banking Regulations Act, 1949, and rules/ environment. regulations made thereunder, he /she was paid only sitting fees for The Board/Committee has an effective post meeting follow up attending every meeting of the Board / Committees of the Board. procedure. Items arising out of previous Board/Committee Meetings No pecuniary relationship/transaction exists for Independent and their follow up action report are placed at the immediately Directors/Non-Executive Directors vis-à-vis the Bank, other than succeeding meeting for information of the Board/ Committees. payment of sitting fees for Board/Committee meetings/ monthly The Board has established procedures to periodically review remuneration during the year as per law. The Independent Directors compliance report pertaining to all laws applicable to the Bank as well of the Bank also had no pecuniary relationship with the Bank, its as steps taken by the Bank to rectify instances of non compliance, if subsidiary or associate companies or their promoters or directors any. during the two immediately preceding financial years. The Board of Directors has satisfied itself that plans are in place for The Independent directors are not eligible for any stock options. orderly succession for appointment to the Board of Directors and During the Financial Year 2019-20, the Bank did not advance any Senior Management. loan to any of its Directors. The Minutes of the Board/Committee meetings are circulated to The criteria of making payments to Independent Directors/ Non- the Chairman and other Members of the Board/Committee for their executive Directors of the Bank are contained in the Comprehensive comments/inputs in accordance with the Secretarial Standards on Compensation Policy for Non-Executive Directors and is available on meetings of the Board of Directors (SS-1) issued by the Institute of the website at www.federalbank.co.in. Company Secretaries of India (ICSI).

85 Corporate Governance The Non Executive - Independent Directors are paid sitting G. Independent Director fees as per the provisions of Companies Act, 2013 and as per the SEBI (Listing Obligations & Disclosures Requirements) The Independent Directors have confirmed that they meet the criteria Regulations, 2015 as indicated below: of independence laid down under the Companies Act, 2013 and Regulation 16 (1) (b) of the SEBI (Listing Obligations & Disclosures Sl Sitting fee paid to Non- No. Name of Directors Executive- Independent Requirements) Regulations, 2015 and that they are not aware of Directors for FY 2019-20 any circumstance or situation, which exist or may be reasonably 1 Ms. Grace Koshie `23,50,000 anticipated, that could impair or impact their ability to discharge 2 Ms. Shubhalakshmi Panse `21,00,000 their duties with an objective Independent judgment and without any external influence. 3 Mr. C Balagopal `14,75,000 4 Mr. A P Hota `18,95,000 The Board of Directors have taken on record the declaration and confirmation submitted by the Independent Directors after 5 Mr. K Balakrishnan `13,65,000 undertaking due assessment of the veracity of the same. 6 Mr. Siddhartha Sengupta `16,30,000 The Board further confirms that no persons were appointed or 7 Mr. Manoj Fadnis `13,90,000 continues as an alternate director for independent director/s of the 8 Mr. Sudarshan Sen ` 2,40,000 Bank. 9 Mr. Dilip Sadarangani `18,00,000 The present tenure of Independent Directors of the Bank is subject 10 Mr. Nilesh S Vikamsey `8,30,000 to Regulation 10 A of the Banking Regulation Act, 1949 and also Note: In addition to above sitting fees; subject to the tenure fixed for appointment of all the Independent 1. ` 7.20 Lakhs & ` 7.50 Lakhs has paid to Ms. Grace Koshie towards honorarium and profit related commission respectively. Directors of the Bank by the shareholders/Board. 2. ` 7.50 lakhs each were paid to Ms. Shubhalakshmi Panse, Mr. C Balagopal, Mr. A P Hota and Mr. Nilesh S Vikamsey towards profit related commission. H. Terms and conditions of appointment of Independent 3. ` 3.86 Lakhs and ` 6.14 lakhs were paid to Mr. K Balakrishnan and Mr. Dilip Sadarangai Directors respectively, towards profit related commission. At the time of appointment of Independent Directors a formal letter The details of remuneration paid to Mr. Shyam Srinivasan, is being issued by the Bank to the appointee Director specifying MD & CEO, Mr. Ashutosh Khajuria and Ms. Shalini Warrier, the terms and conditions of his/her appointment. The terms and Executive Directors during FY 2019-20 are as under: conditions of appointment of Independent Directors have been disclosed on the website of the Bank, www.federalbank.co.in. Mr. Shyam Mr. Ashutosh Ms. Shalini Particulars Srinivasan MD Khajuria ED & Warrier# I. Separate Meeting of Independent Directors & CEO (`) CFO (`) ED & COO (`) Basic Pay 1,51,33,333 24,18,819 23,47,047 A separate meeting of the Independent Directors of the Bank was held on February 25, 2020 for consideration of performance Allowances & Perquisites1 35,27,282 74,06,564 66,77,020 evaluation for FY 2019-20. Apart from Director, Mr. K Balakrishnan Stock Option all the Independent Directors attended the meeting. In accordance (Perquisites)** Nil 35,92,500 Nil with the SEBI (Listing Obligations & Disclosures Requirements) Severance fees Nil Nil Nil Regulations, 2015, following matters were, inter alia, reviewed and Performance discussed in the meeting: Linked a. Performance of the Board of Directors as a whole. Incentive 40,00,000 22,00,000 16,00,000 Total*** 2,26,60,615 1,20,25,383 1,06,24,067 b. Performance of the Chairman of the Bank taking into considera- tion the views of Executive and Non-Executive Directors. #Ms. Shalini Warrier was appointed as an Additional Executive Director on the Board of the Bank effective from January 15, 2020 c. Assessment of quality, quantity and timeliness of flow of infor-

** This includes perquisite value of stock options granted and vested in previous years, and mation between the Bank’s management and the Board that is exercised during the financial year 2019-20. necessary for the Board to effectively and reasonably perform *** Does not include the value of stock options exercised during the year 2019-20, if any Note: their duties. 1. In addition to above, contribution to Provident Fund of ` 15,13,333.00 was paid to Mr. Shyam Srinivasan, MD & CEO, ` 2,41,882.00 was paid to Mr. Ashutosh Khajuria, J.Familiarization Programme for Independent Directors Executive Director & CFO and ` 2,34,708.00 to Ms. Shalini Warrier, Executive Director during the FY 2019-20. The Bank conducts Familiarization Programme for the Independent Directors to enable them to familiarize with the Bank, its Management 2. 1,00,000 number of options was exercised by Mr. Ashutosh Khajuria under ESOS 2010 during the year under review. and its operations so as to gain a clear understanding of their roles,

3. The Independent directors are not eligible for any stock options. rights and responsibilities for the purpose of contributing significantly towards the growth of the Bank.

86 Annual Report 2019-20

At the time of appointing a Director, a formal letter of appointment Board Committees and its terms of reference is given to the Independent Director, which inter alia explains the The Board Committees play a crucial role in the governance structure role, function, duties and responsibilities of him/her as a Director of the Bank and have been constituted to deal with specific areas of of the Bank. They are given full opportunity to interact with Senior concern for the Bank as per delegated powers for different functional Management Personnel and are provided with all the documents areas of the Bank and as mandated under the relevant provisions required and/or sought by them to have a good understanding of of the Companies Act, 2013, the relevant Rules made thereunder, the Bank. SEBI (Listing Obligations & Disclosures Requirements) Regulations, The initiatives undertaken by the Bank in this respect has been 2015, Banking Regulation Act, 1949, guidelines issued by the RBI, disclosed on the website of the Bank at www.federalbank.co.in in this regard, from time to time and the Articles of Association of under section “Shareholders Information”. the Bank. Details on the role and composition of Board Committees, The roles, functions and duties of Independent Directors are disclosed including the number of meetings held during the financial year and in the Code of Conduct for the Board of Directors and Management the related attendance are provided below. and the same is available on the Bank’s website www.federalbank. A. Audit Committee co.in. Composition & Meetings K. Directors and Officers Insurance As on March 31, 2020, Audit Committee comprises of members as The Bank had undertaken Directors and Officers insurance (‘D and stated below. The composition of the Committee is in conformity O insurance’) for all its Directors, including Independent Directors, with the regulatory requirements. for a quantum and risks as determined by the Board of Directors of During the financial year 2019-20, the Audit Committee met 09 the Bank (nine) times on April 16, 2019, May 04, 2019, May 23, 2019, July L. Performance Evaluation Criteria for Independent Directors 16, 2019, August 20, 2019, October 16, 2019, November 07, 2019, of the Bank January 20, 2020 and February 25, 2020. The time gap between any The performance evaluation criteria for Independent Directors two meetings was less than one hundred and twenty days. include: The detail of attendance of members and composition is as i. Attendance at the Board and Committee meetings under: ii. Study of agenda papers in depth prior to meeting and active Name of the Category Status No. of Meetings Member participation at the meeting. Held Attended iii. Contribute to discussions on strategy as opposed to focus only Mr. Manoj Fadnis1 Independent Chairman on agenda Director 09 06 Ms. Grace Koshie2 Independent Member iv. Participate constructively and actively in the Committees of the Director 09 09 Board in which they are Members. Mr. A P Hota Independent Member v. Exercise his/her skills and diligence with due and reasonable care Director 09 08 and brings an independent judgment to the Board Mr. C Balagopal3 Independent Member till Director 30.12.2019 09 Nil vi. The Director remains abreast of developments affecting the company and external environment in which it operates inde- Ms. Shubhalakshmi Independent Member till Panse4 Director 30.12.2019 09 07 pendent of his being appraised at meetings. Mr. Nilesh S Independent Member till vii. Knowledge and Competency: Vikamsey5 Director 24.06.2019 09 03

• How the person fares across different competencies as identi- 1Mr. Manoj Fadnis joined as member of the Committee effective from June 24, 2019. He fied for effective functioning of the entity and the Board became Chairman of the Committee w.e.f December, 30, 2019. 2Ms. Grace Koshie was the Chairperson of the Committee till December, 30, 2019. • Whether the person has enough understanding and knowledge 3Mr. C Balagopal joined as member of the Committee effective from June 24, 2019 and of the entity and the sector in which it operates. ceased to be member of the Committee w.e.f December 30, 2019. 4Ms. Shubhalakshmi Panse ceased to be a member of the Committee w.e.f December, 30, The outcomes of the evaluation of the Independent Directors of 2019. the Bank are detailed in Directors’ Report. In the opinion of the 5Mr. Nilesh Vikamsey ceased to be member of the Committee effective consequent to retire- ment from the Board of the Bank w.e.f June 24, 2019. Board Independent Director fulfill the condition of independence as specified in the Listing Regulations and as per Companies Act, 2013 During the financial year 2019-20, the Committee was re-constituted and are independent of the management. twice on June 24, 2019 and December 30, 2019. Performance evaluation criteria of Non Independent Directors are detailed in the Director’s report portion. Ms. Grace Koshie, who was the Chairperson of Audit Committee,

87 Corporate Governance attended the AGM held on July 25, 2019 to answer the shareholders’ period as the case may be. queries. 9. Recommend to the full Board for shareholders’ approval, the The terms of reference of the Audit Committee as incorporated in the appointment, reappointment, removal, or replacement and Bank’s Code of Corporate Governance, are in accordance with the terms of appointment of auditors, and the fee payable to them Listing Regulations, Companies Act, 2013 and RBI guidelines. for the audit, taking into consideration any relationship between the auditors and the Bank that may impact on the independence Terms of Reference/ Roles and Responsibilities of the Committee are: of the auditors in carrying out the audit. 1. Review the company’s financial and risk-management policies, 10. Approve the terms of engagement of the services of the external/ and, where necessary, recommend changes for the Board’s statutory auditors for rendering any other professional services approval. to the Bank and the fee therefore. 2. Review, with the management, performance of statutory and 11. Discuss with the external auditors, before they commence internal auditors, adequacy of the internal control systems. the audit, the nature and scope of the audit, and ensure coordination where more than one audit firm is employed. 3. Review periodically the adequacy of internal control systems (including the asset-liability management and risk-assessment 12. Review and examine with the management, the annual financial and management systems) with the management and external statements and auditor's report thereon before submission to and internal auditors, assure itself that the systems are being the board for approval, with particular reference to: effectively observed and monitored, and, where necessary, i. any changes in accounting policies and practices and approve changes or recommend changes for the Board’s reasons for the same approval. ii. major accounting entries involving estimates based on the 4. Review the adequacy of the internal audit function, including exercise of judgment by management a. monitoring and reviewing the effectiveness of the Internal audit iii. significant adjustments made in the financial statements function; arising out of audit findings; b. the structure of the internal audit department, staffing, and iv. compliance with the applicable accounting standards the suitability and seniority of the official heading it, reporting v. compliance with listing and other legal requirements structure coverage, and the frequency of internal audit, and, relating to financial statements, and RBI guidelines and where necessary, approve changes; directives, concerning financial policies and statements c. approving internal audit plan, scope and budget; vi. to review the company’s statement on internal control d. reviewing and discussing internal audit reports; systems prior to endorsement by the Board e. ensuring internal audit function maintains open vii. the going-concern assumption communication with senior management, external auditors, viii. disclosure of any related-party transactions, i.e., transactions the supervisory authority, and the audit committee; of the Bank with the Directors, senior executives, their f. assessing the performance of the head of the internal audit relatives, or associated concerns, that may potentially function; and conflict with the Bank’s interests at large; and g. approving / recommending to the Board for its approval, the ix. modified opinion(s) in the draft audit report appointment, re-appointment or removal of the head of the x. matters required to be included in the Director’s internal audit function and the key internal auditors; Responsibility Statement to be included in the Board’s 5. Discussion with internal auditors of any significant findings and report in terms of clause (c) of sub-section 3 of section 134 follow up there on. of the Companies Act, 2013 6. Discussion with the Head of Internal Audit in a private session, 13. Review, with the management, the quarterly financial statements in the absence of the management, on issues of interest. before submission to the Board for approval. 7. Review the findings of any internal investigations by the 14. Review with the external auditors, without the presence of the internal auditors into matters where there is suspected fraud or executive directors and Bank officials, and summarize their irregularity or a failure of internal control systems of a material conclusion (in writing) at a full Board in the presence of the nature and reporting the matter to the board. external auditors and without the presence of the management 8. Review and have oversight of the Bank’s financial reporting (Executive Directors, Bank Officials etc.) process and the disclosure of its financial information to ensure i. The auditors’ report on the annual, half-yearly, and quarterly that the financial statements are correct, sufficient, and credible, financial statements and present a true and fair view of the state of affairs and of the ii. Their assessment of the internal control and reporting systems profit or loss of the Bank for the relevant financial year or other

88 Annual Report 2019-20

and procedures, the quality of the accounting principles applied non-payment of declared dividends) and creditors. and significant judgments affecting the statements, and the 29. Reviewing, with the management, the statement of uses / Bank’s compliance with statutory and regulatory requirements application of funds raised through an issue (public issue, rights iii. The auditors’ long-form audit report and management letter issue, preferential issue, etc.), the statement of funds utilized and the management’s response, and for purposes other than those stated in the offer document / prospectus / notice and the report submitted by the monitoring iv. Any concerns of the auditors with respect to the said systems agency monitoring the utilisation of proceeds of a public or and procedures, the financial statements, any aspect of rights issue, and making appropriate recommendations to the compliance, or any other matter arising from or related to the Board to take up steps in this matter. audit. 30. Review arrangements by which staff of the bank may 15. Discuss with the management the auditors’ report and confidentially raise concerns about possible improprieties in assessment, their qualifications and concerns, if any, and the matters of financial reporting. management’s response to the auditors’ management letter and long-form audit report. 31. Review the utilization of loans and/ or advances from/investment by the holding company in the subsidiary exceeding rupees 100 16. Review with the management, and if necessary with the external crore or 10% of the asset size of the subsidiary, whichever is auditors, any inspection or other report of RBI on the Bank or lower including existing loans / advances / investments. other communication from RBI on the audit, internal controls, financial reporting, or other aspects of the Bank falling within 32. Periodic reviews on borrower entities in which directors of any the remit of the Committee, and the management’s response willful defaulter companies are present thereto; 33. The Audit Committee of the Board shall: 17. To review and oversight the functioning of the Whistle Blower i. ensure that senior management is taking necessary corrective mechanism. actions to address the findings and recommendations of internal 18. Approval of appointment of Chief Financial Officer (i.e., the auditors and external auditors in a timely manner; whole-time Finance Director or any other person heading the ii. address control weaknesses, non-compliance with policies, finance function or discharging that function) after assessing the laws and regulations and other problems identified by internal qualifications, experience & background, etc. of the candidate. auditors and external auditors, and 19. Approval or any subsequent modification of transactions of the iii. ensure that deficiencies identified by supervisory authorities Bank with related parties. related to the internal audit function are remedied within an 20. Valuation of undertakings or assets of the Bank, wherever it is appropriate time frame and that progress of necessary corrective necessary. actions are reported to the board of directors. 21. Evaluation of internal financial controls and risk management 34. Review of Internal Financial Control (IFC) process including Risk systems. Control and Self- Assessment (RCSA) 22. Monitor the end use of funds raised through public offers and 35. Review of Position pertaining to opening of Internal/branch GL related matters. heads the purpose for which used and its reconciliation on a 23. Reviewing and monitoring the auditor’s independence and quarterly basis. performance, and effectiveness of audit process. 36. Oversee the Ind AS implementation process at quarterly intervals. 24. Scrutiny of inter-corporate loans and investments, if any. 37. Ensure adequate coverage of internal audit to satisfy effective 25. To consider and approve/grant omnibus approval for certain implementation of policies and procedures. Related Party Transactions. Powers of Audit Committee: 26. Perform any other function or duty as stipulated by the The Audit Committee shall have the authority – Companies Act, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges and any other regulatory a. to call for the comments of the auditors about internal control authority or under any applicable laws as may be prescribed systems, the scope of audit, including the observations of from time to time. the auditors and review of financial statement before their submission to the Board. 27. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit b. to discuss any related issues with the internal and statutory discussion to ascertain any area of concern. auditors and the management of the company. 28. To look into the reasons for substantial defaults in the payment c. to investigate into any matter in relation to the items referred to to the depositors, debenture holders, shareholders (in case of

89 Corporate Governance it by the Board. and thereafter place the same to the Board. d. to investigate any activity within its terms of reference, seek 2. The chairperson of the committee shall be present at Annual information from any employee, obtain outside legal or other general meeting to answer shareholder queries. professional advice. 3. The Company Secretary shall act as the secretary to the Audit e. to have full access to information contained in the records of the committee. Bank 4. The minutes of the Committee meetings and decisions taken by the Committee shall be promptly submitted to the Board. Review of information by Audit Committee as per SEBI (Listing Obligations and Disclosure Requirements), 5. The Auditors and key managerial personnel shall have a right Regulations, 2015 to be heard in the meetings of the Audit Committee when it The Audit Committee shall mandatorily review the following considers the auditor’s report but shall not have the right to vote information: B. Nomination, Remuneration, Ethics and Compensation i. Management discussion and analysis of financial condition and Committee results of operations; Composition and Meetings ii. Statement of significant related party transactions (as defined by As on March 31, 2020 the Nomination, Remuneration, Ethics the Audit Committee), submitted by management; and Compensation Committee comprises of members as stated iii. Management letters / letters of internal control weaknesses below. The composition of the Committee is in conformity with the issued by the statutory auditors; regulatory requirements, with all Directors being Non-Executives and iv. Internal audit reports relating to internal control weaknesses; fifty per cent of them being Independent Directors. Chairman of the and Committee is an Independent Director. The Committee also includes v. The appointment, removal and terms of remuneration of the one member from Risk Management Committee of the Board. Chief internal auditor shall be subject to review by the Audit During the financial year 2019-20, the Nomination, Remuneration, Committee Ethics and Compensation Committee met 10 (Ten) times on vi. Statement of deviations: May 08, 2019, May 23, 2019, June 03, 2019, July 24, 2019, a. quarterly statement of deviation(s) in the use of proceeds of September 19, 2019, November 07, 2019, November 27, 2019, public / rights / preferential issue from the objects stated in the December 21, 2019, December 30, 2019 and March 12, 2020. offer document or explanatory statement to the notice for the The details of the attendance of the members are as under: general meeting, as applicable; (if any) No. of Meetings Name of the Category Status b. quarterly statement indicating category-wise variation (capital Member Held Attended expenditure, sales and marketing, working capital etc.) 1 between projected utilization of funds in the offer document Mr. C Balagopal Independent Chairman 10 05 Director for public / rights / preferential issue or explanatory statement Ms. Grace Koshie2 Independent Member 10 10 of to the notice for the general meeting, as applicable and the Director actual utilization of funds; Ms. Shubhalakshmi Independent Member 10 05 c. quarterly statement of deviation(s) including report of moni- Panse3 Director toring agency, if applicable, submitted to stock exchange(s) in Mr. Nilesh S Independent Member till 10 03 4 terms of issue of securities of any nature. (if any) Vikamsey Director 24.06.2019 Mr. Dilip Independent Member till 10 04 d. annual statement of funds utilized for purposes other than Sadarangani5 Director 08.09.2019 those stated in the offer document/prospectus/notice in terms 1Mr. C Balagopal joined as a member of the Committee effective from September 16, 2019. of issue of securities of any nature. (if any) He became Chairman of the Committee w.e.f December 30, 2019. vii) Review the financial statements of unlisted subsidiary, in 2Ms. Grace Koshie was appointed as the Chairperson of the Committee w.e.f June 24, 2019 particular, the investments made by the subsidiary. till September 15, 2019. 3Ms. Shubhalakshmi Panse joined as a member of the Committee effective from June 24, Other matters 2019. She chaired the Committee from September 16, 2019 till December 29, 2019.

1. In carrying out its functions as aforesaid, the Committee shall 4Mr. Nilesh Vikamsey ceased to be a member of the Committee consequent to retirement have full access to information contained in the Bank’s records from the Board of the Bank w.e.f June 24, 2019. and may seek information from any employee of the Bank, or, if 5Mr. Dilip Sadarangani ceased to be a member of the Committee consequent to retirement from the Board of the Bank w.e.f September 08, 2019. considered necessary, obtain outside legal or other professional advice, or discuss with outsiders having the relevant expertise,

90 Annual Report 2019-20

During the financial year 2019-20, the Committee was re- constituted *senior management shall mean officers/personnel of the listed four (4) times on May 04, 2019, June 24, 2019, September 16, 2019 entity who are members of its core management team excluding and December 30, 2019. board of directors and normally this shall comprise all members of management one level below the chief executive officer/ Terms of Reference/ Roles and Responsibilities of the managing director/whole time director/manager (including Committee are: chief executive officer/manager, in case they are not part of the 1. Recommending to the Board for its consideration and approval board) and shall specifically include company secretary and chief on the size and composition of the Board taking into account financial officer the available and needed diversity and balance in terms of 16. Supervisory and annual review of the Compensation Policy experience, knowledge, skills, and judgment of the Directors; The Bank is having a compensation policy formulated in 2. Reviewing, from time to time, possible candidates for current or accordance with the RBI guidelines and Companies Act, 2013 potential Board vacancies, including Directors who are to retire which has been approved by the Board. and are eligible for reappointment or re-election and other persons who may be recommended by the Chairman or the C. Investor Grievance, Share Transfer, and Stakeholder MD&CEO or other Directors, shareholders or others; Relationship Committee

3. Recommending to the Board, candidates for election (including Composition and Meetings re-election) or appointment (including reappointment) to the As on March 31, 2020, the Investor Grievance, Share Transfer, and Board. Stakeholder Relationship Committee consists of members as stated 4. Carrying out evaluation of every director’s performance. below. The composition of the Committee is in conformity with the 5. Deciding on the matter of whether to extend or continue the regulatory requirements. term of appointment of the independent director, based on the During the financial year 2019-20, the Committee met seven (7) report of performance evaluation of independent directors. times on April 08, 2019, May 18, 2019, June 19, 2019, July 23, 6. Identifying persons who are qualified to become directors and 2019, August 09, 2019, October 05, 2019 and October 31, 2019. who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their The details of attendance of members are given below: appointment and removal; formulation of the criteria for Name of the No. of Meetings Category Status determining qualifications, positive attributes and independence Member Held Attended of a director; Mr. A P Hota1 Independent Chairman 07 Nil 7. Devising a policy on diversity of board of directors; Director 8. Recommending to the Board a policy, relating to the Mr. C Balagopal Independent Member 07 07 Director remuneration for the directors, key managerial personnel and Mr. Shyam Executive Member 07 06 other employees; Srinivasan Director 9. Formulating and determining the Bank’s policies on remuneration Mr. Ashutosh Executive Member 07 07 packages payable to the Directors and key managerial personnel Khajuria Director including performance/achievement bonus, perquisites, retirals, Mr. Dilip Independent Member till 07 05 2 sitting fees. Sadarangani Director 08.09.2019 10. Considering grant of Stock Options to employees. 1Mr. A P Hota joined as member and became Chairman of the Committee effective from December 30, 2019. No meeting of the Committee was held after Mr. A P Hota becoming 11. Reviewing the composition of the existing Committees of the member of the Committee. Board. 2Mr. Dilip Sadarangani ceased to be a member of the Committee consequent to retirement from the Board of the Bank w.e.f from September 08, 2019. 12. Formulation of criteria for performance evaluation of Independent During the financial year 2019-20, the Committee was re- constituted Directors and the Board; twice on September 16, 2019 and December 30, 2019. 13. Validation of ‘fit and proper’ status of all Directors on the Board Mr. Samir P Rajdev, Company Secretary, functions as the Compliance of the Bank in terms of the Guidelines issued by the RBI or other Officer. regulatory authorities; 14. Developing and recommending to the Board the Corporate Terms of Reference/ Roles and Responsibilities of the Governance guidelines applicable to the Bank for incorporating Committee are: best practices from time to time; The Committee ensures cordial investor relations, oversees the 15. Recommend to the board, all remuneration, in whatever form, mechanism for redressal of investors’ grievances and specifically payable to senior management* looks into various aspects of interest of shareholders. The Committee

91 Corporate Governance looks into the following functions. D. Credit, Investment and Raising Capital Committee

1. Review, where necessary, complaints received from shareholders Composition and Meetings or others regarding transfer/transmission of shares, non-receipt As on March 31, 2020, the Credit, Investment and Raising Capital of declared dividends, non-receipt of annual accounts or reports, Committee consists of members as stated below. or other matters relating to shareholding in the Bank, and any action taken by the Bank on such complaints; During the financial year 2019-20 the Committee met five (5) times 2. Initiate such (further) action on the complaints as is considered on June 12, 2019, June 19, 2019, June 20, 2019, August 09, 2019 necessary or desirable by way of redressal or to prevent similar and October 11, 2019. The details of attendance of members are complaints arising in the future; and given below:

3. Approve or reject applications for transfer/transmission of shares Name of the No. of Meetings Category Status referred to the Committee by the Bank’s Registrar and Share Member Held Attended Transfer Agent in terms of such criteria as may be determined by Mr. K Balakrishnan Independent Chairman 05 05 the Committee and conveyed to the Agent. Director 4. To oversee and review all matters connected with transfers, Mr. Siddhartha Independent Member 05 02 Sengupta1 Director transmissions, dematerialization, rematerialisation, splitting and consolidation of securities issued by the Bank, issue of duplicate Mr. Shyam Srinivasan Executive Member 05 04 Director share certificates; Mr. Dilip Independent Member till 05 04 5. Review of adherence to the service standards adopted by Sadarangani2 Director 08.09.2019 the Bank in respect of various services being rendered by the Mr. Nilesh S Independent Member till 05 03 Registrar & Share Transfer Agent. Vikamsey3 Director 24.06.2019 6. Recommend measures for overall improvement in the quality of 1Mr. Siddhartha Sengupta joined as a member of the Committee effective from June 24, 2019. investor services; 2Mr. Dilip Sadarangani ceased to be a member of the Committee consequent to retirement 7. Review of measures taken for effective exercise of voting rights from the Board of the Bank w.e.f September 08, 2019. by shareholders. 3Mr. Nilesh S Vikamsey ceased to be a member of the Committee consequent to retirement 8. Review of the various measures and initiatives taken by the Bank from the Board of the Bank w.e.f June 24, 2019. for reducing the quantum of unclaimed dividends and ensuring Terms of Reference/ Roles and Responsibilities of the timely receipt of dividend warrants/annual reports/statutory Committee are: notices by the shareholders of the company. 1. Consider proposals for approval, renewal, or modification of 9. Approve the allotment for release of shares kept under abeyance various types of funded and non-funded credit facilities to clients of the Bank in compliance with court order. & proposals for Investments of the Bank within such authority as The Bank attended to the complaints promptly and to the satisfaction delegated to it by the Board from time to time. of the shareholders. Details of complaints received and resolved by 2. Monitor the credit and investment exposures of the Bank, review the Bank during the financial year 2019-20 are given below: the adequacy of the credit and investment risk management Complaint Total com- Number of Number of processes and policies, internal control systems and compliance pending for plaints re- complaints complaints of statutory, regulatory and other applicable norms. redressal at ceived during redressed pending for the beginning the year redressal 3. Periodically review the large corporate loans and advances of the year appearing in SMA lists and standard restructured advances. Nil 8 8 Nil 4. Take note of the details of credit facilities sanctioned by MD level As on March 31, 2020, apart from the complaints, around 981 committee and call for more particulars/comments/clarifications, requests/information were received from the shareholders relating if found necessary. to change of address, nomination requests, email id and contact 5. Take note of the details of compromise settlements approved by details updation, IFSC / MICR code updation, National Automated the ED and MD level committees and call for more particulars/ Clearing House (NACH) Mandates, queries relating to the annual comments/clarifications, if necessary. reports, request for re-validation of dividend warrants and other 6. Periodically review Non-Performing Assets of large value investor related matters. This requests/information has also been (`5 crore and above). responded. 7. Committee has the power to approve compromise proposals as per delegation in the NPA management policy.

92 Annual Report 2019-20

8. Committee shall recommend the compromise proposals beyond 7. Committee has the power to approve compromise proposals as their power to the Board of Directors for approval per delegation in the NPA management policy. During the year 2019-20, the Committee was re-constituted twice 8. Committee shall recommend the compromise proposals beyond on May 04, 2019 and June 24, 2019. their power to the Board of Directors for approval. During the year 2019-20, the Board of the Bank vide its circular 9. Status report of the position of assets sold to ARCs under resolution dated November 27, 2019 had split the Credit, Investment Security Receipt Basis held as investment. and Raising Capital Committee into two, namely Credit Committee 10. Any other matter of materialist information that management and lnvestment & Raising Capital Committee effective from November deems fit for reporting to the committee for noting, review, 28, 2019 and December 07, 2019 respectively. ratification or approval.

E. Credit Committee During the year 2019-20, the Committee was re-constituted once on December 30, 2019. Composition and Meetings F. Investment and Raising Capital Committee As on March 31, 2020, the Credit Committee consists of members as stated below. The composition of the Committee is in conformity Composition and Meetings with the regulatory requirements. As on March 31, 2020, the Investment and Raising Capital During the financial year 2019-20, after split w.e.f November 28, Committee consists of members as stated below. The composition 2019 the Committee met four (4) times on November 28, 2019, of the Committee is in conformity with the regulatory requirements. December 16, 2019, February 24, 2020 and March 23, 2020. During the financial year 2019-20, the Committee met two (2) times The details of attendance of members are given below: on December 16, 2019 and February 24, 2020 after reconstitution w.e.f December 07, 2019. No. of Meetings Name of the Member Category Status Held Attended No. of Meetings Mr. K Balakrishnan Independent Chairman Name of the Member Category Status 4 4 Director Held Attended Mr. Siddhartha Independent Member Mr. Siddhartha Sengupta Independent Chairman 2 2 4 4 Sengupta Director Director Mr. Shyam Srinivasan Executive Member Mr. C Balagopal Independent Member 2 2 4 3 Director Director Mr. Ashutosh Khajuria1 Executive Member Mr. Ashutosh Khajuria Executive Member 2 2 4 2 Director Director

1Mr. Ashutosh Khajuria joined as a member of the Committee effective from December 30, Terms of Reference for the Investment and Raising Capital 2019. Committee Terms of Reference of Credit Committee 1. Consider proposals for approval of Investments of the Bank 1. Consider proposals for approval, renewal, or modification within such authority as delegated to it by the Board from time of various types of funded and non-funded credit facilities to to time. clients. 2. Approve the Policies related to the Treasury Investment and 2. Monitor the credit exposures of the Bank, review the adequacy Trading activities and recommend the same to the Board. of the credit risk and compliance of statutory and regulatory 3. Approve the new products launched by the Treasury Department norms. and recommend the same to the Board. 3. Periodically review the large corporate advances appearing in 4. Review of the investment activities, risk management thereof, SMA lists and standard restructured advances. and policies, internal control systems and compliance of 4. Take note of the details of credit facilities sanctioned by MD level statutory, regulatory and other applicable norms. committee and call for more particulars/comments/clarifications, 5. Approve the capital raising program of the Bank and recommend if found necessary. the same to the Board. 5. Take note of the details of compromise settlements approved by 6. Periodic review of Bank’s investments in Subsidiaries, JVs & the ED and MD level committees and call for more particulars/ Associates in addition to other unlisted investments including comments/clarifications, if necessary. VCF/ PE and strategic investments. 6. Periodically review Non Performing Assets of large value (`5 Crore and above).

93 Corporate Governance 7. Any divestment of shares in Subsidiaries/ JVs and Associates (CRMC), Market Risk Management Committee (MRMC also should be put up to this Committee for vetting before submitting known as Asset Liability Management Committee - ALCO), to Board for approval. Operational Risk Management Committee (ORMC) and During the year 2019-20, the Committee was re-constituted once on Information Security Committee (ISC). December 30, 2019. c) Set policies and guidelines for measurement, management and reporting of credit risk, market risk and operational risk. G. Risk Management Committee d) Set risk mitigation and stop-loss parameters in respect of all the Composition and Meetings three risks. As on March 31, 2020, the Risk Management Committee consists of e) Ensure management processes (including people, systems, members as stated below. The composition of the Committee is in operations, limits and controls) for implementing risk conformity with the regulatory requirements. management systems. During the financial year 2019-20, the Committee met 4 (four) f) Ensure robustness and effectiveness of financial / rating models times on May 23, 2019, August 20, 2019, November 07, 2019 and and their appraisal systems for assessing various risks faced by February 20, 2020. the Bank.

Name of the No. of Meetings g) Review of the Internal Capital Adequacy Assessment Process. Category Status Member Held Attended (ICAAP). Ms. Shubhalakshmi Independent Chairman 04 04 h) Review of credit rating process, fixation of exposure ceilings Panse Director for various types of exposures, geographies, sectors, industries Ms. Grace Koshie Independent Member 04 04 etc and based on internal / external rating, borrower category/ Director groups etc. Mr. Siddhartha Independent Member 04 03 Sengupta1 Director i) Ensure availability of qualified and competent officers and risk managers in the Integrated Risk Management Department for Mr. Shyam Executive Member 04 04 Srinivasan Director ensuring effectiveness of risk management systems in the Bank. Mr. Ashutosh Executive Member 04 03 j) Decide/approve adoption of technology/appropriate and Khajuria Director adequate MIS system needed for risk management. 2 Mr. C Balagopal Independent Member till 04 01 k) Reinforce the culture and awareness of risk management Director 24.06.2019 throughout the organization that would attach high priority 1 Mr. Siddhartha Sengupta joined as a member of the Committee effective on effective risk management and adherence to sound internal from June 24, 2019. controls. 2 Mr. C Balagopal ceased to be a member of the Committee effective from June 24, 2019. l) Review of functions related to management of Business continuity, Reputation risk, Model risk, Strategic risk, Information During the financial year 2019-20, the Committee was re- constituted & cyber security risk, outsourcing risk and Pension obligation once on June 24, 2019. risk. Terms of Reference/ Roles and Responsibilities of the n) Review of procedure for product approval. Committee are: o) Review of Stress Testing methodology and Stress Scenarios. The Risk Management Committee of the Board shall put in place Decide additional provision requirements on exposure to specific policies and procedures for enterprise wide risk management stressed sectors. of the Bank based on the regulatory guidance and best practices. p) Review of Liquidity risk management including Contingency Risk Management Committee shall approve/ recommend to the Board Funding Plans and contingency funding under stress scenario. to approve the policy, strategy and methods for risk management, q) Risk Management Committee of the Board to meet with the by evaluating the overall risks faced by the Bank and determining Chief Risk Officer of the Bank independently on one to one basis the acceptable level of risks, its management and control in the best without the presence of MD & CEO on a quarterly basis”. interest of the Bank. The Committee shall oversee all risk management functions in the Bank and undertake the following functions. Powers of the Risk Management Committee (RMC) a) Recommend to the Board to approve the policies and strategies RMC shall exercise the following powers, subject to approval by the for implementing bank-wide integrated risk management Board. system, for addressing various risks faced by the Bank. a) Review of the policy and strategy for integrated risk management b) Oversee functions of Credit Risk Management Committee covering credit, market and operational risks.

94 Annual Report 2019-20

b) Review of the risk limits and exposure ceilings of the Bank, and Terms of Reference/ Roles and Responsibilities of the its periodic review as and when needed. Committee are: c) Review standards / delegation for credit dispensation. In respect of Customer Service, the key roles & responsibilities of the Committee are provided below: d) Review of the risk categories under Credit Risk Assessment (CRA) system and classification as acceptable and unacceptable 1. Approving the various policies that relate to customer service ; category and periodic changes needed to such classification. examples thereof include and are not limited to : e) Review of systems and tools for management of all the three a. Comprehensive Deposit Policy categories of risks. b. Treatment of death of a depositor for operations in the f) Reviewing norms for Loan Review Mechanism (LRM), level of account dependence on the system and all related procedures c. Grievance Handling process g) Analysing credit rating migration studies of large value exposures d. Collection of cheques to assess quality and concentration of credit exposures. 2. Reviewing metrics and indicators that provide information on h) Reviewing norms/ceilings for maturity profile and mix of the the state of customer service in the Bank; providing direction to incremental assets and liabilities. the management of the Bank on actions to be taken to improve i) Fixing of tolerance levels for Liquidity risk monitoring, interest the metrics. rate sensitivity/EaR, trigger points for realignment of assets/ 3. Reviewing the actions taken/ being taken by the Bank to liabilities. standardize the delivery of customer experience across all j) Review the functions of the CRMC, ALCO, ORMC and ISC from branches. time to time. 4. Reviewing results of the surveys conducted that provide k) Reviewing policy for interest rates view/funding/ pricing of quantitative and qualitative information on the state of customer products etc of the Bank. experience. l) Ensuring capital adequacy management with due regard to 5. Providing inputs on the products introduced by the Bank with a various risks impacting the balance sheet. view to ensure suitability and appropriateness. m) Recommending to the Board to approve reviews on assessment, 6. Monitoring the implementation of the Banking Ombudsman monitoring and controlling of non-quantifiable risks like Scheme with particular reference to: strategic risk, reputation risk etc. a. Reviewing all the awards against the Bank with a focus on identifying issues of systemic deficiencies and the Bank’s plan H. Customer Service, Marketing Strategy & Digital Banking Committee to address these deficiencies As on March 31, 2020, the Customer Service, Marketing Strategy & b. Reviewing all awards that remain unimplemented after 3 Digital Banking Committee consists of members as stated below. The months from the date of the award with the reasons thereof; to report to the Board such delays in implementation without composition of the Committee is in conformity with the regulatory valid reasons and for initiating remedial action requirements. 7. Review, on an overall basis, the customer service aspects in the During the financial year 2019-20, the Committee met 3 (three) Bank on the basis of the detailed memorandum submitted in times on June 10, 2019, November 19, 2019 and March, 12, 2020. this regard and report to the Board of Directors thereafter; this No. of Meetings Name of the Member Category Status is done once every six months and based on the review, the Held Attended Committee will direct the Bank to initiate prompt corrective Independent action wherever service quality / skills gaps have been noticed. Mr. C Balagopal Chairman 03 03 Director 8. Monitoring the activities of the Standing Committee on Independent Mr. A P Hota Member 03 03 Customer Service (executive level committee) on a quarterly Director basis. Mr. Siddhartha Independent Member 03 02 Sengupta1 Director 9. Review of minutes of product and process approval committee. Executive Mr. Shyam Srinivasan Member 03 03 10. Biennial audit of depositor services. Director 11. Review of relevant instructions issued by other regulators. 1Mr. Siddhartha Sengupta joined as a member of the Committee effective from June 24, 2019 12. Review of cases reported under Limited Liability in unauthorized During the financial year 2019-20, the Committee was re-constituted electronic banking transactions policy. once on June 24, 2019. In respect of the Marketing functions of the Bank, the key roles & responsibilities of the Committee are provided below:

95 Corporate Governance 1. Reviewing the Bank’s marketing strategy; providing direction on During the financial year 2019-20, the Committee was re-constitut- areas of focus. ed once on June 24, 2019. 2. Providing direction on the communication strategy and media Terms of Reference/ Roles and Responsibilities of the Committee are: focus. The major functions of the Committee would be to monitor and 3. Reviewing the Bank’s progress in implementing the marketing review all frauds of ` 100 Lakh and above so as to: strategy. i. Identify the systemic lacunae if any that facilitated perpetration In respect of Digital Banking, the key roles & responsibilities of the of the fraud and put in place measures to plug the same. Committee are provided below: ii. Identify the reasons for delay in detection, if any, reporting to 1. Reviewing the Bank’s Digital Banking strategy; providing top management of the bank and RBI. direction on areas of focus. iii. Monitor progress of CBI/Police investigation and recovery 2. Reviewing the progress made on the metrics relating to Digital position. Banking; these metrics cover performance metrics as determined iv. Ensure that staff accountability is examined at all levels in all the by the Board of Directors (as part of the annual budget) and also cases of frauds and staff side action, if required, is completed cover metrics that are determined by the Government of India quickly without loss of time. from time to time and to review the customer service rendered v. Review the efficacy of the remedial action taken to prevent on digital platform from time to time. recurrence of frauds, such as strengthening of internal controls. 3. Progress on various new initiatives and partnerships. vi. Put in place other measures as may be considered relevant to I. Special Committee of the Board for Monitoring and Follow strengthen preventive measures against frauds. up of Cases of Frauds All the frauds involving an amount of ` 100 lakh and above should Composition and Meetings be monitored and reviewed by SCBF. The periodicity of the meetings of the Committee may be decided according to the number of cases As on March 31, 2020, the Special Committee of the board for moni- involved. In addition, the Committee should meet and review as and toring and follow up of cases of frauds consists of members as stated when a fraud involving an amount of `100 lakh and above comes to below. The composition of the Committee is in conformity with the light. Information of frauds of `100L and above shall be sent to the regulatory requirements. members of SCBF through e-mail immediately on detection followed As required under the RBI regulations, all fraud cases of ` 1 Crore by placing report before the Committee in its next meeting. and above are considered by the Committee and as directed by the In addition to the monitoring and review of frauds of `100 Lakh and Audit Committee, all fraud cases of `1 Lakh and above are reported above; to this Committee. 1. The Committee shall monitor and review the progress of the During the financial year 2019-20, the Committee met 4 (four) times mitigating steps taken by the Bank in case of Cyber and Electronic on June 12, 2019, August 20, 2019, December 30, 2019 and March Banking frauds and the efficacy of the same in containing the 12, 2020. number of frauds and values at least on a quarterly basis. Name of the Category Status No. of Meetings 2. The Committee shall review the Red Flagged Accounts (RFA) and Member Held Attended the remedial actions proposed by the Fraud Monitoring Group Mr. Shyam Srinivasan Executive Chairman 04 04 (FMG), when an account is classified as RFA. Director J. Committee for Human Resources Policy Ms. Grace Koshie Independent Member 04 04 Director Composition and Meetings Ms. Shubhalakshmi Independent Member 04 03 Panse Director As on March 31, 2020, the Committee for Human Resources Policy consists of members as stated below. The composition of the Mr. Manoj Fadnis1 Independent Member 04 03 Director Committee is in conformity with the regulatory requirements. Mr. Ashutosh Executive Member 04 03 During the financial year 2019-20, the Committee met 2 (two) times Khajuria Director June 14, 2019 and December 30, 2019. Mr. Nilesh Independent Member till 04 01 S Vikamsey2 Director 24.06.2019 1Mr. Manoj Fadnis joined as a member of the Committee effective from June 24, 2019. 2Mr. Nilesh S Vikamsey ceased to be a member of the Committee consequent to retirement from the Board of the Bank w.e.f June 24, 2019.

96 Annual Report 2019-20

As on March 31, 2020, the Information Technology & Operations Name of the No. of Meetings Category Status Committee consists of members as stated below. The composition Member Held Attended of the Committee is in conformity with the regulatory requirements. Mr. Siddhartha Independent Chairman 02 01 Sengupta1 Director During the financial year 2019-20, the Committee met 4 (four) Mr. K Balakrishnan2 Independent Member 02 Nil times on May 23, 2019, August 20, 2019, November 19, 2019 and Director March 12, 2020. Mr. Manoj Fadnis3 Independent Member 02 Nil Name of the No. of Meetings Director Category Status Member Held Attended Mr C Balagopal4 Independent Member till 02 01 Director 30.12.2019 Mr. A P Hota1 Independent Chairman 04 04 Director Mr. Shyam Srinivasan Executive Member 02 02 Director Ms. Shubhalakshmi Independent Member 04 03 Panse2 Director Ms. Shubhalakshmi Independent Member till 02 02 Panse5 Director 30.12.2019 Mr. Manoj Fadnis3 Independent Member 04 01 Director Mr. Nilesh Independent Member till 02 01 S Vikamsey6 Director 24.06.2019 Mr. Shyam Srinivasan Executive Member 04 04 Director 1Mr. Siddhartha Sengupta joined as a member of the Committee effective from June 24, 2019. Mr. Dilip Independent Member till 04 02 Sadarangani4 Director 08.09.2019 2Mr. K Balakrishnan joined as a member of the Committee effective from December 30, 2019 and no meeting of the Committee held after December 30, 2019 1Mr. A P Hota became Chairman of the Committee w.e.f December 30, 2019.

3Mr. Manoj Fadnis joined as a member of the Committee effective from December 30, 2019 2Ms. Shubhalakshmi Panse chaired the Committee from May 04, 2019 till December 29, 2019. and no meeting of the Committee held after December 30, 2019 3Mr. Manoj Fadnis joined as a member of the Committee effective from December 30, 2019. 4Mr C Balagopal was member and Chairman of the Committee till December 29, 2019. 4Mr. Dilip Sadarangani ceased to be a member of the Committee consequent to retirement 5Ms. Shubhalakshmi Panse ceased to be a member of the Committee effective from from the Board of the Bank w.e.f September 08, 2019. December 30, 2019. During the financial year 2019-20, the Committee was re-constituted 6Mr. Nilesh S Vikamsey ceased to be a member of the Committee consequent to retirement from the Board of the Bank w.e.f June 24, 2019 twice on May 04, 2019 and December 30, 2019. During the financial year 2019-20, the Committee was re-constituted In respect of the Technology functions of the Bank, the key roles & twice on June 24, 2019 and December 30, 2019. responsibilities of the Committee are provided below:

Terms of Reference/ Roles and Responsibilities of the Terms of Reference/ Roles and Responsibilities of the Committee are: Committee are 1. To Review HR Strategy aligning with business strategy of the 1. Approving IT strategy and policy documents and reviewing the Bank. same from time to time. 2. Periodic review of existing HR policy of the Bank. 2. Ensuring that the management has put an effective strategic 3. To review productivity levels of employees benchmarking with planning process in place. peers in the industry. 3. Ensuring that the IT strategy is indeed aligned with business 4. To review compensation policy of the Bank. strategy. 5. To review outsourcing Policy of the Bank. 4. Ensuring that the IT organizational structure complements the business model and its direction. 6. To review Learning Initiatives. 5. Ascertaining that management has implemented processes and 7. To review Talent pool creation/ Succession Planning Policy. practices that ensure that the IT delivers value to the business. 8. To review Skill gaps and Talent pool creation/ Succession 6. Ensuring IT investments represent a balance of risks and benefits Planning. and that budgets are acceptable. 9. To review Funding Superannuation Policy. 7. Monitoring the method that management uses to determine 10. To review periodic HR Plans and Activities. the IT resources needed to achieve strategic goals and provide high-level direction for sourcing and use of IT resources. K. Information Technology & Operations Committee 8. Ensuring proper balance of IT investments for sustaining bank’s The Information Technology and Operations Committee of the growth. Board shall advice on the strategic direction of the Technology and Operations functions within the Bank. 9. Becoming aware about exposure towards IT risks and controls. And evaluating effectiveness of management’s monitoring of IT

97 Corporate Governance risks through oversight over the proceedings of the Information During the year, the Committee was reconstituted thrice on May 04, Security Committee. 2019, June 24, 2019 and December 30, 2019. 10. Assessing Senior Management’s performance in implementing Terms of Reference/ Roles and Responsibilities of the IT strategies. Committee are: The CSR Committee shall: 11. Issuing high-level policy guidance (e.g. related to risk, funding, or sourcing tasks). 1. Formulate and recommend to the Board for approval, the Corporate Social Responsibility Policy which shall indicate the 12. Confirming whether IT or business architecture is to be designed, activity or activities to be undertaken by the Bank in areas or so as to derive the maximum business value from IT. subjects as specified in schedule VII of the Companies Act, 2013. 13. Overseeing the aggregate funding of IT at a bank-level, and 2. Guide and monitor the activities of the Bank in the area of CSR ascertaining if the management has resources to ensure the such that the spends are in line with the activities stipulated in proper management of IT risks. the CSR Policy. 14. Reviewing IT performance measurement and contribution of IT 3. Provide inputs, on an ongoing basis, to the formulation of to businesses. strategic objectives and tactical plans that would help ensure In respect of the Operations functions of the Bank, the key roles & the Bank is able to fulfill its corporate social responsibilities in a responsibilities of the Committee are provided below: responsible and effective manner. 1. Ensuring that the management has put an effective strategic 4. Recommend the amount of expenditure to be incurred on the planning process in place for operational activities that balances activities undertaken by the Bank. risk, customer experience and costs reviewing the same from The Bank has formulated a CSR Policy in line with Schedule VII of time to time. the Companies Act, 2013.The CSR policy of the Bank is available on 2. Ensuring that the Operations organizational structure the website of the Bank, www.federalbank.co.in under section “who complements the business model and its direction. we are”. 3. Ensuring that management has put in place effective steps M. Review Committee of the Board on Non to mitigate operational risks relating to the core operational Co-Operative Borrowers processes of the Bank. As on March 31, 2020, the Review Committee of the Board on Non 4. Issuing high-level policy guidance (e.g. related to risk, funding, Co- Operative Borrowers consists of members as stated below. The or sourcing tasks) composition of the Committee is in conformity with the regulatory 5. Reviewing metrics and measurement relating to operational requirements. processes so as to ensure due contribution to the business During the financial year 2019-20, the Review Committee of the Board on Non Co- Operative Borrowers met 1 (One) time on June L. Corporate Social Responsibility Committee 12, 2019. As on March 31, 2020, the Corporate Social Responsibility Committee The Review Committee of the Board on Non Cooperative Borrowers (CSR Committee) consists of members as stated below. The finalizes the decision with regard to classification & declassification composition of the Committee is in conformity with the regulatory of Non Cooperative Borrowers for reporting of such borrowers to requirements. the Central Repository of Information on Large Credits (CRILC) by During the financial year 2019-20, the CSR Committee met 3 (three) the Bank. times on June 12, 2019, August 06, 2019 and February 06, 2020. Name of the No. of Meetings Category Status Member Name of the No. of Meetings Held Attended Category Status Member Held Attended Mr. Shyam Srinivasan Executive Chairman 01 01 Director Mr. K Balakrishnan Independent Chairman 03 03 Director Mr. K Balakrishnan Independent Member 01 01 Director Mr. A P Hota Independent Member 03 03 Director Mr. Manoj Fadnis1 Independent Member 01 Nil Director Mr. Shyam Srinivasan Executive Member 03 02 Director Mr. Siddhartha Independent Member till 01 Nil Sengupta2 Director 30.12.2019 Mr. Ashutosh Executive Member 03 03 Khajuria Director Mr. Dilip Independent Member till 01 01 Sadarangani3 Director 08.09.2019 Mr. Manoj Fadnis Independent Member till 03 Nil Director 30.12.2019 1Mr. Manoj Fadnis was inducted as member of the Committee effective from December 30, 2019. *Mr. K Balakrishnan became Chairman of the Committee w.e.f May 04, 2019. 2Mr. Siddhartha Sengupta joined as a member of the Committee effective from June 24, **Mr. Manoj Fadnis joined as a member of the Committee effective from June 24, 2019 and 2019 and ceased to be member of the Committee effective from December 30, 2019. ceased to be a member of the Committee effective from December 30, 2019. 3Mr. Dilip Sadarangai ceased to be member of the Committee consequent to retirement from the Board of the Bank w.e.f September 08, 2019. 98 Annual Report 2019-20

During the financial year 2019-20, the Committee was reconstituted Identification Committee’s order, the Review Committee shall also thrice (3) on May 04, 2019, June 24, 2019, and December 30, 2019. consider the representations if any made by the borrowers against such order. The Review Committee shall pass a reasoned order and Terms of Reference/ Roles and Responsibilities of the the copy thereof shall also serve on the borrowers. Committee are In compliance with RBI directions on Non Cooperative Borrowers Subsidiary and Joint Venture Company of the Bank (NCB) the Bank has put in place a policy on identification, classification The Bank has two subsidiary companies, Fedbank Financial Services & declassification of Non Cooperative Borrowers and reporting of Limited and Federal Operations and Services Limited. The Bank has such borrowers to the Central Repository of Information on Large no material subsidiaries as per the conditions laid down in the Listing Credits (CRILC). The policy envisages formation of a Committee Regulations; hence no Policy on Material Subsidiary has been framed. headed by an Executive Director & consisting of two other Senior As on March 31, 2020, the Bank has two Associate Companies, Executives of the rank of SVP/VP to take a decision on classification a Joint Venture Life Insurance Company, named IDBI Federal Life & declassification of Non Cooperative Borrowers. Accordingly an ED Insurance Company Limited and an Investment Banking subsidiary level committee headed by ED & CFO is formed. The decisions of the named Equirus Capital Private Limited. ED level committee has to be placed to this Review Committee of the Board for confirmation. The Directors of the Bank who are also in the subsidiary/associate companies are as follows: N. Review Committee of the Board for Wilful Defaulters • Mr. Shyam Srinivasan, Managing Director and Chief Executive As on March 31, 2020, the Review Committee of the Board for Wilful Officer (MD & CEO) and Mr. K Balakrishnan, Independent Defaulters consists of members as stated below. The composition of Director of the Bank are Non-Executive Directors in Fedbank the Committee is in conformity with the regulatory requirements. Financial Services Limited. Mr K. Balakrishnan holds the position During the financial year 2019-20, the Review Committee of the of Chairman in Fedbank Financial Services Limited. Board for Wilful Defaulters met 1 (One) time on March 23, 2020. • Mr. C Balagopal, Independent Director and Ms. Shalini Warrier, Executive Director & Chief Operating Officer of the Bank are Name of the No. of Meetings Category Status Member Held Attended Non-Executive Directors in Federal Operations and Services Ltd (FedServ). Mr. C Balagopal holds the position of Chairman in Mr. Shyam Srinivasan Executive Chairman 01 Nil Director FedServ. Mr. K Balakrishnan Independent • Mr. Shyam Srinivasan, MD & CEO and Mr. Ashutosh Khajuria, Member 01 01 Director Executive Director & Chief Financial Officer of the Bank are Ms. Grace Koshie Independent Member 01 01 Non-Executive Directors in IDBI Federal Life Insurance Company Director Limited. Mr. Manoj Fadnis1 Independent Member till 01 Nil Director 30.12.2019 Mr. Harsh Dugar, Country Head - Wholesale Banking of the Bank is a Nominee Director on the Board of Equirus Capital Private Limited, 1Mr. Manoj Fadnis joined as a member of the Committee effective from June 24, 2019 and ceased to be member of the Committee effective from December 30, 2019. Associate Company. During the financial year 2019-20, the Committee was re-constituted The Bank monitors performance of its subsidiary Companies, thrice (3) on May 04, 2019, June 24, 2019 and December 30, 2019. inter-alia, by the following means: • The Audit Committee reviews financial statements of the Terms of Reference/ Roles and Responsibilities of the Committee are subsidiary Companies, along with investments made by them. This Review Committee reviews the order of the Internal Committee • The Board of Directors reviews the Board Meeting minutes and that identifies accounts to be reported as wilful default to comply statements of all significant transactions and arrangements, if with the regulatory guidelines. The Order shall become final only any, of subsidiary Companies. after it is confirmed by the Review Committee. While reviewing the The Bank does not have a listed subsidiary.

99 Corporate Governance General Body Meetings

A. Details of the last three general body meetings, Special Resolutions taken up in those meetings and passed with requisite majority are mentioned hereunder: Name of Meeting - 86th Annual General Meeting Day, Date and Time of Meeting - Friday, 14 July 2017 at 10.00 AM. Venue - Mahatma Gandhi Municipal Town Hall, Aluva Special Resolutions Reappointment of Mr. K M Chandrasekhar as an Independent Director of the Bank Reappointment of Mr. Nilesh Vikamsey as an Independent Director of the Bank. Reappointment of Mr. Dilip G Sadarangani as an Independent Director of the Bank Reappointment of Mr. Harish H Engineer as an Independent Director of the Bank Reappointment of Ms. Grace Koshie as an Independent Director of the Bank Reappointment of Ms. Shubhalakshmi Panse as an Independent Director of the Bank To introduce and implement a scheme for grant of stock options - “ESOS 2017” Approval for amendment of Article 80 of Articles of Association of the Bank Approval of Long Term Bond issuance programme for the financial year 2017-18 Approval for increase of the Borrowing power of the Bank by ` 7000 Crore over and above the Paid up Capital and free reserves of the Bank pursuant to section 180 (1) (c ) of the Companies Act, 2013

Name of Meeting - 87th Annual General Meeting Day, Date and Time of Meeting - Friday, 10 August 2018 at 10.00 AM Venue - Mahatma Gandhi Municipal Town Hall, Aluva Special Resolutions Approval for raising of funds through Issuance of Bonds for FY 2018-19. Approval for increase of the Borrowing power of the Bank by ` 12000 Crore over and above the Paid up Capital , free reserves including securities premium of the Bank pursuant to section 180 (1) (c ) of the Companies Act, 2013.

Name of Meeting - 88th Annual General Meeting Day, Date and Time of Meeting - Thursday, July 25, 2019 at 10.00 AM Venue - Mahatma Gandhi Municipal Town Hall, Aluva Special Resolutions To re-appoint Mr. C. Balagopal (DIN: 00430938) as an Independent Director for the second term. Approval for Raising of Funds through Issuance of Bonds for FY 2019-20.

During the year, all recommendations of the Board of Directors were accepted by the Shareholders of the Bank in respect of special businesses mentioned in the 88th Annual General Meeting notice.

B. Postal Ballot During the year under review, no resolution was passed through postal ballot. Currently, no resolution is proposed to be passed through postal ballot. However, if required, the same shall be passed in compliance of provisions of Companies Act, 2013, Listing Regulations or any other applicable laws.

Ethical Standards Employed by the Bank All the employees of the Bank are required to comply with Bank’s service manuals which, inter alia, provides for various ethical practices to be adhered to by them. It also includes Code of Ethics and Business Conduct, which provides the guidelines on standards of business conduct and it applies to all employees of the Bank. The Code explains the conduct and ethical behaviour to be exhibited by each employee towards customers, colleagues and other stakeholders to uphold the collective interest of the Bank. This includes Bank’s obligation to comply with all general laws, local rules and regulations relevant to our activity and its commitment to enhance shareholders’ value. 100 Annual Report 2019-20

Policies, Affirmations and Disclosures Regulation (2) of Regulation 46 of the Listing Regulations and necessary disclosures thereof have been made in this Corporate A. Code of Corporate Governance and Code of Conduct Governance report. The Board of Directors of the Bank has adopted the Code of Corporate Governance and Code of Conduct for the Directors of the Bank and E. Commodity Price Risk or Foreign Exchange Risk and Hedging Activities for Management, and the code is reviewed on an annual basis. All the Board members and the senior management of the Bank have The Foreign Exchange Risk arising out of Forex positions of the Bank affirmed compliance to the Bank’s Code of Corporate Governance is monitored by the Market Risk Division of Integrated Risk Manage- and Code of Conduct. Bank’s Code of Corporate Governance and ment Department. Various risk limits such as Daylight Limit, NOOP, Code of Conduct for Directors and Management are available on the AGL and Forex VAR are defined in the Market Risk Management website of the Bank www.federalbank.co.in. All Board Members and Policy of the Bank and are closely monitored by the Market Risk Senior Management Personnel affirm compliance with the Code of Division. The policy of the Bank on Investment, Forex and Derivative Conduct annually. A declaration signed by the Chief Executive Officer operations lays out the operative guidelines for Foreign Exchange op- (CEO) to this effect is placed at the end of this report. erations. The Foreign Currency Assets and Liability gap is ascertained by Treasury Department and is managed using hedging tools such as B. Related Party Transactions swaps, wherever found necessary. Bank is not involved in Commodity All related party transactions that were entered during the finan- Price Risk hedging activities. cial year were in the ordinary course of the business of the Bank F. Federal Bank Code of Conduct for Regulating, Monitoring and were on arm’s length basis. There were no materially significant and Reporting Trading by lnsiders and code of Practices and related party transactions entered by the Bank with Related parties Procedures for Fair Disclosure which may have a potential conflict with the interest of the Bank. All The Bank has in place a Code of Conduct for Regulating, Monitoring Related Party Transactions were placed before the Audit Committee and Reporting Trading by lnsiders and Code of Practices and of the Board for approval. Prior omnibus approval for transactions Procedures for Fair Disclosure in accordance with SEBI (Prohibition which are of repetitive nature is obtained from the Audit Committee of Insider Trading) Regulations, 2015. The same have been revised and accordingly the required disclosures are made to the Committee during the year in accordance with amendments in the SEBI on quarterly basis in terms of the approval of the Committee. (Prohibition of Insider Trading) Regulations, 2015. The Code of The policy on materiality of Related Party Transactions and also on Conduct for Prevention of Insider Trading lays down guidelines dealing with Related Party Transactions as approved by the Audit advising the Management, staff and other connected persons, on Committee and the Board of Directors is uploaded on the website of procedures to be followed and disclosures to be made by them while the Bank and the link for the same is http://www.federalbank.co.in/ dealing with the shares of Bank, and while handling any Unpublished our-commitments Price Sensitive Information, cautioning them of the consequences of Since all related party transactions entered into by the Bank were in violations. the ordinary course of business and were on an arm’s length basis, Mr. Samir P Rajdev, Company Secretary of the Bank has been disclosures as per Form AOC-2 is not applicable to the Bank.There designated as Compliance Officer. were also no material contracts or arrangement or transactions with Senior Management of the Bank has affirmed compliance with the related parties during the period. Code of Conduct. C. Details of non-compliance by the Bank G. Whistle Blower Policy/Vigil Mechanism The Bank has complied with all the requirements of regulatory Bank has a comprehensive Fraud Risk Management Policy that authorities. No penalties/strictures were imposed on the Bank by speaks on various control systems, monitoring and surveillance Stock Exchanges or SEBI or any statutory authority on any matter mechanism so as to prevent, detect and investigate frauds both related to capital markets during the last three years. internal and external. Vigilance department plays a dynamic role in D. Disclosure on compliance with Corporate Governance prevention as well as investigation of frauds. Preventive measures Requirements specified in Listing Regulations include spreading awareness on potential fraudulent activities and The Bank has complied with the requirements of Part C (Corporate instigating a compliant environment among all employees of the Governance Report) of Sub-Paras (2) to (10) of Schedule V of the Bank. Effectiveness of fraud prevention mechanism is ensured by Listing Regulations. conducting Preventive Vigilance Workshops, Preventive Vigilance Audits and alerts to all employees on regular basis that disseminates The Bank has complied with Corporate Governance requirements various modus operandi of frauds in the banking industry. Bank specified in Regulation 17 to 27 and Clauses (b) to (i) ofSub- has been keen on educating customers against fraudulent activities

101 Corporate Governance through various channels including SMS, E-mails, posters at placed at the end of this report. Branches, scroll messages on Bank website and internet banking J. Utilization of funds raised through Preferential Allotment webpage, etc. Suspected frauds/complaints/internal irregularities are or Qualified Institutions Placement promptly investigated by the Vigilance Department. During the year under review, no funds were raised through As part of Detective Vigilance all the cases of suspected frauds preferential allotment or qualified institutions placement as specified reported in the Bank are investigated in detail. Lacunae if any under Regulation 32 (7A) of Listing Regulations. observed during the course of investigation are plugged and wherever warranted systemic corrections are implemented. K. Certificate from Company Secretary in Practice regarding disqualification of Directors Bank has a robust Whistle Blower Policy termed as Protected Disclosure Scheme (PDS) with a view to enhancing public confidence in the In terms of Clause 10(i) of Para C of Schedule V of Securities and Bank and also in compliance of rules in this regard. The policy aims at Exchange Board of India (Listing Obligations and Disclosure establishing an efficient vigil mechanism in the Bank to quickly spot Requirements) Regulations, 2015, the Secretarial Auditors of the aberrations and deal with it at the earliest. It is disseminated among Bank, M/s. SEP & Associates , Practicing Company Secretaries have the employees assuring confidentiality and protection to the whistle issued a certificate that none of the Directors on the Board of the blower against any personal vindictive actions such as humiliation, Bank have been debarred or disqualified from being appointed harassment or any other form of unfair treatment. Directors and or continuing as Directors of Companies by the Board/Ministry of Employees of the Bank, employee representative bodies, customers, Corporate Affairs or any such statutory authority. The same is placed stakeholders, non-governmental organizations (NGO) and members at the end of this report. of the public can lodge complaints/disclosures under this scheme. L. Recommendations of Committee(s) of the Board of The Head of Vigilance Department in the Bank will be the nodal Directors officer to receive complaints under the scheme. In exceptional cases During the year, all recommendations of Committee(s) of the Board the Chairman of the Audit Committee may act as the nodal officer. of Directors, which are mandatorily required, were accepted by the A dedicated e-mail ID is provided for sending complaints/disclosures Board. under PDS. An e-mail ID for sending complaints to the Chairman of Audit Committee in exceptional cases is also provided. Vigilance M. Internal Controls Department conducts investigation of all complaints /information The Bank has a system of internal control which examines both received through the PDS and submits report to MD & CEO. The the financial effectiveness and operational effectiveness to ensure details of the complaints and findings are also placed before the reliability of financial and operational information and all statutory Audit Committee of the Board on a quarterly basis. The scheme is /regulatory compliances. popularised through various measures such as preventive vigilance N. Disclosures in relation to the Sexual Harassment of Women classes, internal circulars, alerts etc. No personnel have been denied at Workplace (Prevention, Prohibition and Redressal) Act, access for giving any information as envisaged in the Protected 2013 Disclosure scheme. The PDS Document is made available in Intranet Kindly refer to relevant disclosures in the Directors’ Report which and Bank’s website, forms part of the Annual Report 2019-20. www.federalbank.co.in under section “Customer Relations – Codes, Policies & Disclosures”. O. Fees paid to Statutory Auditors The total fees incurred by the Bank and its subsidiaries on a H. Dividend Distribution Policy consolidated basis, for services rendered by Joint Statutory Central To bring transparency in the matter of declaration of dividend and to Auditors (M/s. BSR & Co LLP and M/s. M M Nissim & Co) and its protect the interests of investors, Bank has in place a Dividend Policy affiliates entities, is given below: since long. The Policy is in line with Regulation 43A of the Listing (` in Crore) Regulations and the Companies Act, 2013 which has been displayed Particulars FY 2019-20 on the Bank’s website, www.federalbank.co.in and is also available in Audit Fees* 2.01 the Director’s Report which forms part of the Annual Report. Statutory Certificates 0.27 I. CEO/CFO Certification Total 2.28 In terms of Regulation 17(8) read with Part B of Schedule II to the * - Includes certification and branch audit fee Listing Regulations, the CEO and CFO have issued a certificate to the P. Credit Ratings and Change/ Revisions in Credit Ratings for Board of Directors of the Bank with regard to the financial statements Debt Instruments and other matters specified in the said regulation and the same is Details of Credit Ratings obtained by your Bank during the financial

102 Annual Report 2019-20

year are as follows; B. Annual Report • CRISIL A1+ for the Certificate of Deposit Programme of the Physical copy of the Annual Report for FY 2018-19, containing inter- Bank alia, details of the Audited Financial Statements, Director’s Report • CARE AA (Stable) [Double A, Outlook: Stable] for the Tier II (including Management Discussion and Analysis and Corporate bonds (Under Basel III) Governance Report) was sent to all shareholders who had not registered their email ids for the purpose of receiving documents/ • IND AA/Stable by India Rating and Research for the Tier II bonds (Under Basel III) communication from the Bank in electronic mode and is also available at the Bank’s website, www.federalbank.co.in Q. Outstanding GDRS/ADRS/Warrants or any Convertible Instruments, Conversion Date and Likely Impact on Equity C. News Releases/ Presentations The Bank has 3,18,02,641 GDRs (equivalent to equity shares) Official press releases, presentations made to the media, analysts, outstanding, which constituted 1.60% of the Bank’s total capital as institutional Investors, etc. are displayed on the Bank’s website, at March 31, 2020. www.federalbank.co.in.

R. Compliance with Mandatory Requirements D. Website The Bank has complied with all applicable mandatory requirements of The Bank’s website, www.federalbank.co.in contains a separate the Listing Regulations during the financial year 2019-20. Quarterly section ‘Investor Relations’ for use of investors. The quarterly, compliance report on Corporate Governance, in the prescribed half yearly and annual financial results, official news releases and format, duly signed by the compliance officer is submitted regularly presentations made to institutional Investors and to analysts are with the Stock Exchanges where the shares of the Bank are listed. promptly and prominently displayed on the website. Annual Reports, The required disclosures under SEBI (LODR) Regulations, 2015 are Quarterly Corporate Governance Report, Shareholding Pattern and detailed under various portions of Directors Report and Corporate other Corporate Communications made to the Stock Exchanges are Governance Report and compliance has been ensured. also available on the website. Annual Report of subsidiary Companies is also posted on the website. Adoption of Discretionary Requirements The ‘Investor Relations’ section provides the details of unclaimed A. Modified opinion(s) in Audit Report dividends warrants for dividends declared upto the financial year The auditors have expressed an unmodified opinion on the financial ended 31.03.2019, to help shareholders to claim the same. In statements of the Bank. addition various downloadable forms required to be executed by the shareholders have also been provided on the website. B. Separate posts of Chairperson and Chief Executive Officer Share price page are also provided in ‘Investor Relations’ section. The Bank has also complied with the adoption of non-mandatory Share price page includes, inter alia, real time updates on stock price, requirement on separate posts of Chairman and Chief Executive stock movement, historical share price data etc. Officer. Ms. Grace Koshie is the Chairperson and Mr. Shyam Srinivasan is the Managing Director & CEO of the Bank as on March 31, 2020. E. Communication to Shareholders on e-mail Documents like Notices, Annual Report etc. are sent to the C. Reporting of Internal Auditor shareholders at their email address, as registered with their Depository The Internal Auditors of the Bank report directly to the Audit Participants/ Company/ Registrar and Transfer Agents (RTA). This Committee of the Bank. helps in prompt delivery of document, reduce paper consumption and avoid loss of documents in transit. Members who have not yet D. Shareholders Rights registered their email id (including those who wish to change their Quarterly Financial Results are uploaded on the Bank’s website www. already registered email id) may get the same registered/ updated federalbank.co.in. either with their depositories or by writing to the Bank/ RTA.

Means of communication F. Reminders to Shareholders A. Financial Results Reminders for claiming unclaimed shares lying with the Bank which The quarterly, unaudited and annual audited Standalone & are liable to be transferred to the Investor Education and Protection Consolidated financial results were published in nationally circulated Fund Authority are sent to the Shareholders as per Bank records. newspaper in English, in Financial Express/ Mint and in the regionally G. NEAPS (NSE Electronic Application Processing System) and circulated Malayalam daily Deepika. The results were also displayed BSE Listing centre on the Bank’s website, www.federalbank.co.in. NSE and BSE have developed web based applications for Corporates. All compliances like financial results, Shareholding Pattern and

103 Corporate Governance Corporate Governance Report, etc. are filed electronically on NEAPS/ The dividend for following years (see table below), which remains BSE Listing centre. unclaimed for seven years from the date it is lying in the unpaid dividend account of the Bank, will be transferred to the IEPF in H. SCORES (SEBI complaints redressal system) accordance with the schedule given below. Shareholders who have SEBI processes investor complaints in a centralized web based not encashed their dividend warrants relating to the dividends complaints redressal system i.e., SCORES. Through this system a specified below are requested to immediately send their request shareholder can lodge complaint against a Company for his grievance. for issue of duplicate warrants/ for credit to their bank account The Company uploads the action taken on the complaint which can with requisite documents. The details of dividends specified below be viewed by the shareholder. The Company and shareholder can are available on the website of the Bank, www.federalbank.co.in. seek and provide clarifications online through SCORES. Once unclaimed dividends are transferred to IEPF, no claim shall lie in respect thereof with the Bank. However, shareholders may claim GENERAL INFORMATION FOR SHAREHOLDERS their unclaimed amount as per the procedures/guidelines issued by A. Company Registration Details the Ministry of Corporate Affairs (MCA). For details, Investors can visit The Company is registered in Kerala, India. The Corporate the website of IEPF Authority viz., www.iepf.gov.in. Identification Number (CIN) allotted by the Ministry of Corporate Financial Year Type of Dividend Date of Due date Affairs (MCA) is L65191KL1931PLC000368. Dividend rate % Declaration for transfer to IEPF B. Annual General Meeting 2012-13 Final 90 20.07.2013 20.08.2020 Date: July 16, 2020; Time: 11 am; Venue: Through Video 2013-14 Final 100 14.07.2014 13.08.2021 Conferencing (‘VC’) or Other Audio Visual Means (‘OAVM’) 2014-15 Final 110 29.06.2015 29.07.2022 2015-16 Final 35 11.08.2016 10.09.2023 C. Financial Calendar 2016-17 Final 45 14.07.2017 16.08.2024 Financial Year: April 1, 2019 to March 31, 2020 2017-18 Final 50 10.08.2018 12.09.2025 For the financial year ended March 31, 2020, results were announced 2018-19 Final 70 25.07.2019 30.08.2026 on: • First Quarter: July 16, 2019 G. Mandatory Transfer of Shares to Demat Account of Investors Education and Protection Fund Authority (IEPFA) • Second Quarter: October 16, 2019 in case of unpaid/ unclaimed dividend on shares for a • Third Quarter: January 20, 2020 consecutive period of seven years • Fourth Quarter & Annual: May 28, 2020 In terms of Section 124(6) of the Companies Act, 2013 read with Rule 6 of the Investor Education and Protection Fund Authority D. Book Closure (Accounting, Audit, Transfer and Refund) Rules, 2016, (as amended The dates of Book Closure are from Saturday, July 11, 2020 to from time to time) shares on which dividend has not been paid or Thursday, July 16, 2020 (both days inclusive). claimed by a shareholder for a period of seven consecutive years or more shall be credited to the Demat Account of Investor Education E. Dividend Payment and Protection Fund Authority (IEPFA) within a period of thirty days Reserve Bank of India vide its circular dated April 17, 2020, has of such shares becoming due to be so transferred. Upon transfer of directed that banks shall not make any further dividend payouts from such shares, all benefits (like bonus, etc.), if any, accruing on such profits pertaining to the financial year ended March 31, 2020 until shares shall also be credited to such Demat Account and the voting further instructions, with a view that banks must conserve capital rights on such shares shall remain frozen till the rightful owner claims in an environment of heightened uncertainty caused by Covid-19 the shares. Shares which are transferred to the Demat Account of pandemic. IEPFA can be claimed back by the shareholder from IEPFA by following F. Dates for Transfer of Unclaimed Dividend to Investors the procedure prescribed under the aforesaid rules. Therefore, it is in Education and Protection Fund (IEPF) the interest of shareholders to regularly claim the dividends declared Pursuant to Section 124 of the Companies Act, 2013, final dividend by the Bank. for the financial year 2011- 12 amounting to ` 9,342,315 which Consequent to the above, during the financial year 2019-20, remained unpaid /unclaimed for a period of seven years from the 3,00,131 equity shares of the Bank were transferred to the IEPFA. date it was lying in the unpaid dividend account, has been transferred Relevant details of such shares are available on the website of the by the Bank to the Investors Education and Protection Fund (IEPF) of Bank, www.federalbank.co.in. the Central Government on October 01, 2019.

104 Annual Report 2019-20

H. Listing At present, the Equity Shares of the Bank are listed at:

• BSE Ltd (BSE) Address: Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai- 400 001

• National Stock Exchange of India Limited (NSE) Address: Exchange Plaza, Plot No. C/1, G Block, Bandra-Kurla Complex, Bandra (E) The GDRs issued by the Bank in 2006 have been listed on the London Stock Exchange, 10 Paternoster Sq., London EC4M 7LS, United Kingdom. The Bank’s shares were also listed in Cochin Stock Exchange, but as per exit order granted by SEBI to Cochin Stock Exchange Limited vide, order dated December 23, 2014, the Banks shares are no more listed/traded in Cochin Stock Exchange.

I. Bank’s Stock Exchange Code BSE Scrip Code : 500469 (Scrip ID: FEDBANK) NSE Symbol : FEDERALBNK LSE Scrip Code : FEDS Demat ISIN Code : INE171A01029 The annual listing fees up to the financial year 2020-21 to BSE and NSE has been paid. The Bank has paid the custodial fees to the NSDL and CDSL as per the SEBI Circular CIR/MRD/DP/05 2011 dated April 27, 2011 for the year 2020-21.

J. Equity Evolution during the year K. Stock Market Data As at March 31, 2020, the paid-up share capital of the Bank was a. Market price data- high, low during each month in the Financial `3,985,329,144/- consisting of 1,992,664,572 equity shares of ` 2/- Year 2019-20 each. Details of equity evolution of the Bank during the year under Monthly high and low quotations for each month during the Financial review is as under Year 2019-20 at the National Stock Exchange of India Limited and

Allotment of Equity Shares pursuant to exercise of ESOS the BSE Ltd., are as follows:

(Face Value per Share is ` 2/- NSE BSE 29.04.2019 280030 Month High Low Month High Low 10.06.2019 511867 Apr '19 100.00 92.00 Apr '19 100.00 92.00 27.06.2019 139962 May '19 109.00 92.15 May '19 109.00 92.00 17.07.2019 1327308 Jun '19 109.80 100.85 Jun '19 109.70 100.90 27.08.2019 808885 Jul '19 110.40 89.20 Jul '19 110.35 89.20 09.10.2019 2302896 Aug '19 91.95 79.15 Aug '19 92.00 79.10 02.11.2019 556187 Sep '19 98.55 79.75 Sep '19 98.60 79.80 04.12.2019 1158054 Oct '19 93.25 79.00 Oct '19 93.15 79.05 23.12.2019 141040 Nov '19 92.10 81.40 Nov '19 92.05 81.35 22.01.2020 105400 Dec '19 89.85 83.00 Dec '19 89.85 83.05 20.02.2020 281240 Jan '20 96.95 85.60 Jan '20 96.95 85.70 Feb '20 93.70 81.00 Feb '20 93.65 81.00 Mar ' 20 88.20 35.70 Mar '20 88.30 35.70

105 Corporate Governance b. Performance in comparison to broad based indices such as BSE – Sensex and NSE – Nifty 50

SENSEX HIGH Vs. FEDERAL HIGH NIFTY HIGH Vs. FEDERAL HIGH

12,600 120 43,000 120 12,400 42,000 100 100 12,200 41,000 80 80 11,800 40,000 11,600 39,000 60 60

TY HIGH 11,400 38,000 SENSEX HIGH 40 NIF FEDERAL HIGH 11,200 FEDERAL HIGH 37,000 40 20 11,000 36,000 10,800 20 35,000 0 Apr’ May’ Jun’ Aug’ Sept’ Nov’ Dec’ Feb’ Mar’ Jul’19 Oct’ 19 Jan’20 19 19 19 19 19 19 19 20 20 10,600 Sensex High 39,487 40,125 40,312 40,032 37,808 39,441 40,392 41,164 41,810 42,274 41,709 39,083 0 10,400 Apr’ May’ Jun’ Aug’ Sept’ Nov’ Dec’ Feb’ Mar’ Jul’19 Oct’ 19 Jan’20 Federal High 100 109 110 110 92 99 93 92 90 97 94 88 19 19 19 19 19 19 19 20 20 Sensex High 11,856 12,041 12,103 11,982 11,181 11,695 11,945 12,159 12,294 12,431 12,247 11,433 MONTH Federal High 100 109 110 110 92 99 93 92 90 97 94 88

MONTH Sensex High Federal High

Nifty High Federal High

L. Distribution of Shareholding Shareholding pattern by ownership as on March 31, 2020 Details of distribution of shareholding of the equity shares of the Share holder Category No of Shares % Bank by size and by ownership class on March 31, 2020 along with Mutual Funds 509368009 25.56 Shareholders holding more than 1% of shares of the Bank is given Financial Institutions/Bank/Insurance below: Companies 208555112 10.47 Foreign Portfolio Investor & Alternate Shareholding pattern by size as on March 31, 2020 Investment Fund 662696704 33.26 Total % of Bodies Corporate 17330326 0.87 number % of Value Share- Total Value of share shares Individual(including NRIs) 526207992 26.41 holders holders NBFCs Registered with RBI 194901 0.01 1 2 3 4 5 Central Govt/ State Govt/ President of India 510 0.00 Upto 5000 347602 92.99 109732895 5.51 Any Other(Trust, Overseas Corporate Bod- 5001 - 10000 12828 3.43 46443108 2.33 ies, Foreign Bank, Foreign Body Corporate , LLP, Clearing Member) 36508377 1.83 10001 - 20000 7485 2.00 53380499 2.68 No. of shares underlying Depository 20001 - 30000 2411 0.64 29648942 1.49 Receipts 31802641 1.60 30001 - 40000 843 0.23 15034773 0.75 Total no. of shares held 1992664572 100% 40001 - 50000 576 0.15 13045700 0.65 500001 - 100000 1109 0.30 39265535 1.97 ABOVE 100001 974 0.26 1686113120 84.62 Total 373,828 100 1,992,664,572 100

Shareholders holding more than 1% as on March 31, 2020 SL Name Shares held % No. 1 ICICI Prudential Mutual Fund 94934066 4.84 2 HDFC Life Insurance Company Limited 56664091 2.89 3 Life Insurance Corporation of India 90406887 4.61 4 DSP Mutual Fund 53966298 2.75 5 Aditya Birla Sun Life Mutual Fund 25117262 1.28 6 Fidelity Investment Trust Fidelity Series Emerging Markets Opportunities Fund 43436094 2.22 7 HDFC Mutual Fund 68052817 3.47

106 Annual Report 2019-20

SL Name Shares held % No. 8 Kotak Mahindra Mutual Fund 32196522 1.64 9 Reliance Mutual Fund 69773482 3.56 10 Sundaram Mutual Fund 26596735 1.36 11 Vanguard Emerging Markets Stock Index Fund, A Series of VIEIF 21404771 1.09 12 Franklin Templeton Investment Funds 31239082 1.59 13 MFS International New Discovery Fund 26502621 1.35 14 SBI Mutual Fund 34876557 1.78 15 Vanguard Total International Stock Index Fund 27435415 1.40 16 Trust Company Americas 31802641 1.62 17 East Bridge Capital Master Fund Limited 48345447 2.47 18 Norges Bank on Account of the Government Pension Fund Global 37489510 1.91 19 Bank Muscat India Fund 33351210 1.70 20 East Bridge Capital Master Fund I Limited 37729342 1.92 21 Kotak Funds - India Midcap Fund 22483798 1.15 22 Yusuffali Musaliam Veettil Abdul Kader 77600640 3.96 23 Rakesh Jhunjhunwala 60321060 3.08

M. Dematerialisation of the Bank’s Shares N. Registrars and Share Transfer Agent The Paid up Equity Shares of the Bank as on March 31, 2020 is SEBI vide Regulation 7 of the SEBI (Listing Obligations & Disclosure 1,992,664,572 shares. Out of this 1,991,645,897 shares are listed. Requirements) Regulations, 2015 (Listing Regulations), has Of the total paid up equity shares of the Bank, 1,756,191,150 shares mandated that where the total number of security holders of the (88.07%) are held in dematerialized form in NSDL, 215,671,763 Company exceeds one lakh, the Company shall register with SEBI as a (10.82%) in CDSL and 20,801,659 (1.04%) are in physical form. Category II Share Transfer Agent for all work related to share registry Under agreements with National Securities Depository India Ltd., or appoint a Registrar to an Issue and Share Transfer Agent registered (NSDL) and Central Depository Services Ltd (CDSL), the Bank’s shares with SEBI. Bank had appointed Integrated Registry Management can be and are traded in electronic form. The equity shares of the Services Private Limited as its RTA for both segments, physical and Bank are frequently traded at BSE Ltd. and National Stock Exchange electronic, much before this was mandated by SEBI. of India Ltd. As required under Regulation 7(3) of the Listing Regulations, the Shareholders who continue to hold shares in physical form are Bank files, on half yearly basis, certificate issued by RTA and compli- requested to dematerialize their shares at the earliest and avail ance officer of the company certifying that all activities in relation the benefits of dealing in shares in demat form. For convenience to both physical and electronic share transfer facility are maintained of shareholders, the process of getting the shares dematerialized is by RTA registered with SEBI i.e., Integrated Registry Management given hereunder: Services Private Limited. a. Demat account should be opened with a Depository Participant Details of the RTA are given below- (DP). Integrated Registry Management Services Private Limited b. Shareholders should submit the Dematerialization Request Form 2nd Floor, Kences Towers, No.1, Ramakrishna Street, (DRF) along with share certificates in original, to their DP. Off: North Usman Road, T. Nagar, Chennai-600017 c. DP will process the DRF and will generate a Dematerialization Phone No: 044-28140801-03 Request Number (DRN). d. DP will submit the DRF and original share certificates to the Fax: 044-28142479, Email: [email protected] Registrar and Transfer Agents (RTA), which is Integrated Registry O. Share Transfer System Management Services Private Limited. Integrated Registry Management Services Private Limited, the e. RTA will process the DRF and confirm or reject the request to DP/ Registrar and Share Transfer Agents looks after the share transfer. depositories. The Bank’s equity shares which are in compulsory dematerialized f. Upon confirmation of request, the shareholder will get credit (demat) list are transferable through the depository system. Shares in of the equivalent number of shares in his demat account main- tained with the DP. 107 Corporate Governance physical form are processed by the RTA and approved by the Investor Certification by Managing Director & Grievance, Share Transfer and Stakeholders’ Relationship Committee Chief Executive Officer of the Company of the Bank. Pursuant to the SEBI (Listing Obligations and Disclosure Declaration on Code of Conduct Requirements) Regulations, 2015, with effect from April 1, 2019, In compliance with the requirements of the Regulation 26(3) of SEBI (Listing except in case of transmission or transposition of securities, requests Obligations and Disclosure Requirements) Regulations, 2015 this is to for effecting transfer of securities shall not be processed unless the confirm that all the Board Members and the Senior Management Personnel securities are held in dematerialized form with a depository. have affirmed compliance with the Code of Conduct for the financial year ended 2019-20. All share transfers are completed within statutory time limit from the Shyam Srinivasan date of receipt, provided the documents meet the stipulated require- Place : Aluva Managing Director & CEO, ment of statutory provisions in all respects. The Bank obtains, from Date : June 19, 2020 The Federal Bank Ltd a company secretary in practice, half yearly certificate of compliance with the share transfer/ transmission or transposition of securities CEO/ CFO Certificate formalities as required under Regulation 40(9) of the Listing Regula- We, Shyam Srinivasan, Managing Director & Chief Executive Officer tions, and the Bank files a copy of the same with the Stock Exchanges. and Ashutosh Khajuria, Executive Director & Chief Financial Officer An independent firm of practicing Company Secretaries carries out of The Federal Bank Limited, hereby certify that: the Reconciliation of Share Capital Audit as mandated by SEBI, and A. We have reviewed financial statements and the cash flow reports on the reconciliation of total issued and listed Capital with statement for the year ended March 31, 2020 and that to the that of total share capital admitted / held in dematerialized form best of our knowledge and belief: with NSDL and CDSL and those held in physical form. This audit is carried out on quarterly basis and the report thereof is submitted to 1. these statements do not contain any materially untrue state- the Stock Exchanges, where the Bank’s shares are listed. ment or omit any material fact or contain statements that might be misleading; P. Compliance with Secretarial Standards 2. these statements together present a true and fair view Your Bank is in compliance with the applicable Secretarial Standards of Bank’s affairs and are in compliance with existing issued by The Institute of Company Secretaries of India and approved accounting standards, applicable laws and regulations. by the Central Government under Section 118(10) of the Companies B. There are, to the best of our knowledge and belief, no Act, 2013 for FY 2019-20. transactions entered into by the Bank during the year which Q. Company’s Registered Office Address are fraudulent, illegal or violate of the Bank’s code of conduct. The Federal Bank Ltd, PB No. 103, Federal Towers, Head Office, Aluva C. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have eval- – 683 101, Kerala State, India uated the effectiveness of internal control systems of the Bank The Bank has a network of 1263 Branches across India as on pertaining to financial reporting and have disclosed to the March 31, 2020. auditors and the audit committee, deficiencies in the design Address for correspondence: or operation of such internal controls, if any, of which we Contact information of Bank’s Company Secretary and Compliance are aware and the steps we have taken or propose to take to designated official for assisting and officer rectify these deficiencies. handling of investor grievance Secretarial Department The Federal Bank Limited D. We have indicated to the Auditors and the Audit committee: Corporate Office Federal Towers, Alwaye - 683 101 1. significant changes in internal control over financial Ph.: 0484-2634061 / 0484- reporting during the year; 2622263 Email: [email protected] 2. significant changes in accounting policies during the year Registrars and Share Transfer Agents Integrated Registry Management and that the same have been disclosed in the notes to the Services Private Limited 2nd Floor, financial statements; and Kences Towers, No.1,Ramakrishna Street, 3. instances of significant fraud of which we have become Off: North Usman Road, T.Nagar, aware and the involvement therein, if any, of the manage- Chennai- 600 017. Ph.No: 044-28140801-03; ment or an employee having a significant role in the Bank’s Fax: 044-28142479 internal control system over financial reporting. Email : [email protected] Ashutosh Khajuria Shyam Srinivasan Executive Director & Managing Director & Chief Financial Officer Chief Executive Officer

Place: Kochi Date: May 28, 2020 108 Annual Report 2019-20

Annexure – 1

DETAILS OF OTHER DIRECTORSHIPS HELD Name of the Directors Status Directorship* Category Committee Committee Membership Chairmanship Ms. Grace Koshie ID Listed Companies Firstsource Solutions Limited ID Nil Audit Committee CESC Ventures Limited ID Audit Committee Nil Ms. Shubhalakshmi Panse ID Listed Companies Sudarshan Chemical Industries Limited ID Nil Audit Committee PNB Housing Finance Limited Audit Committee & Stake- ID Nil holders Committee KPIT Technologies Limited ID Audit Committee Nil Atul Limited ID Nil Nil Mr. C Balagopal ID Unlisted Public Company Federal Operations and Services Limited NED Nil Nil Mr. A P Hota ID Unlisted Public Companies IDBI Intech Ltd ID Audit Committee Motilal Oswal Asset Management Company ID Audit Committee Nil NSDL e-Gov Infrastructure Limited Add. Director Nil Mr. K Balakrishnan ID Unlisted Public Company Fedbank Financial Services Ltd ID Audit Committee Nil Mr. Siddhartha Sengupta ID Unlisted Public Companies Standard Chartered Investments and Loans (India) Limited ID Audit Committee Nil Tara Chand Logistic Solutions Limited ID Audit Committee Nil IIFL Trustee Limited ID Nil Audit Committee Mr. Manoj Fadnis ID Listed Companies Kriti Nutrients Limited Stakeholders Rela- ID tionship Committee Audit Committee Kriti Industries ( India) Limited ID Nil Audit Committee Unlisted Public Companies Yes Securities (India) Limited ID Nil Audit Committee Yes Asset Management (India) Limited ID Nil Audit Committee Mr. Sudarshan Sen ID Nil NA NA NA Mr. Shyam Srinivasan ED Unlisted Public Companies IDBI Federal Life Insurance Company Limited NED Nil Nil Fedbank Financial Services Limited NED Nil Nil Mr. Ashutosh Khajuria ED Unlisted Public Company IDBI Federal Life Insurance Co. Limited NED Audit Committee Nil Ms. Shalini Warrier ED Unlisted Public Company Federal Operations and Services Limited NED Nil Nil

*Directorship in Unlisted Public and Listed Companies are only considered. *Committee Membership in Audit and Stakeholder Relationship Committee are only considered

109 Corporate Governance Independent Auditor Certificate on Compliance of Corporate Governance

To The Members, The Federal Bank Limited

1. We have examined the compliance of conditions of Corporate Governance by The Federal Bank Limited (‘the Bank’), for the financial year ended on March 31, 2020, as stipulated in Regulations 17 to 27, clauses (b) to (i) of Regulation 46(2) and paragraphs C, D and E of Schedule V to the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred as the “Listing Regula- tions”) as amended from time to time.

Management’s Responsibility 2. The compliance of conditions of Corporate Governance is the responsibility of the Management. This responsibility includes the design, implementation and maintenance of internal control and procedures to ensure compliance with the conditions of the Corporate Governance stipulated in the Listing Regulations. Responsibility also includes collecting, collating and validating data and designing, implementing and monitoring of Corporate Governance process suitable for ensuring compliance with the above mentioned Listing Regulations.

Our Responsibility 3. Pursuant to the Listing Regulations, it is our responsibility to provide a reasonable assurance whether the Bank has complied with the conditions of Corporate Governance as stipulated in Listing Regulations for the year ended March 31, 2020. 4. We have examined the compliance of conditions of Corporate Governance by the Bank for the period April 1, 2019 to March 31, 2020 as per the Listing Regulations. Our responsibility is limited to examining the procedures and implementation thereof, adopted by the Bank for ensuring compliance with the conditions of the Corporate Governance for the period April 01, 2019 to March 31, 2020. It is neither an audit nor an expression of opinion on the financial statements of the Bank.

Opinion 5. Based on our examination of the relevant records and according to the information and explanations provided to us and the representa- tions provided by the Management, we certify that the Bank has complied with the conditions of Corporate Governance as stipulated in Regulation 17 to 27 and clauses (b) to (i) of Regulation 46(2) and para C and D of Schedule V to the Listing Regulations during the financial year ended March 31, 2020. 6. We further state that such compliance is neither an assurance as to the future viability of the Bank nor the efficiency or effectiveness with which the Management has conducted the affairs of the Bank.

Restriction on use 7. The certificate is addressed and provided to the members of the Bank solely for the purpose to enable the Bank to comply with the re- quirement of the Listing Regulations, and it should not be used by any other person or for any other purpose.

For SEP & Associates UDIN: F003050B000337494 Company Secretaries (ICSI Unique Code: P2019KE075600)

Sd/-

CS Sivakumar P Managing Partner COP: 2210 FCS: 3050

Date: June 12, 2020 Place: Kochi

110 Annual Report 2019-20

CERTIFICATE OF NON-DISQUALIFICATION OF DIRECTORS

(Pursuant to Regulation 34(3) and Schedule V Para C clause (10)(i) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015)

To The Members The Federal Bank Limited Federal Towers, P B No. 103 Alwaye-683101

We have examined the relevant registers, records, forms, returns and disclosures received from the Directors of The Federal Bank Limited having CIN: L65191KL1931PLC000368 having registered office at Federal Towers, P B No. 103, Alwaye, Kerala -683101 (hereinafter referred to as the “Bank”), produced before us by the Bank for the purpose of issuing this Certificate, in accordance with Regulation 34(3) read with Schedule V Para-C Sub clause 10(i) of the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended. In our opinion and to the best of our information and according to the verifications (including Directors Identification Number status at the portal www.mca.gov.in) as considered necessary and explanations furnished to us by the Bank & its officers, we hereby certify that none of the Directors on the Board of the Bank as stated below, for the Financial Year ended on March 31, 2020 have been debarred or disqualified from being appointed or continuing as Directors of companies by the Securities and Exchange Board of India, Ministry of Corporate Affairs or any such other Statutory Authority.

Sl. No Name of the Director DIN Initial Date of Appointment in the Company 1 Ms. Grace Koshie 06765216 22-11-2013 2 Ms. Shubhalakshmi Panse 02599310 29-04-2014 3 Mr. C Balagopal 00430938 29-06-2015 4 Mr. A P Hota 02593219 15-01-2018 5 Mr. K Balakrishnan 00034031 25-09-2018 6 Mr. Siddhartha Sengupta 08467648 13-06-2019 7 Mr. Manoj Fadnis 01087055 13-06-2019 8 Mr. Sudarshan Sen 03570051 11-02-2020 9 Mr. Shyam Srinivasan 02274773 23-09-2010 10 Mr. Ashutosh Khajuria 05154975 28-01-2016 11 Ms. Shalini Warrier 08257526 15-01-2020 Ensuring the eligibility for the appointment / continuity of every Director on the Board is the responsibility of the management of the Bank. Our responsibility is to express an opinion on this based on our verification. While forming opinion on issuance of this certificate we have also taken into consideration independent legal opinion wherever there was a scope for multiple interpretations. This certificate is neither an assurance as to the future viability of the Bank nor of the efficiency or effectiveness with which the management has conducted the affairs of the Bank.

For SEP & Associates, UDIN: F003050B000337461 Company Secretaries (ICSI Unique Code: P2019KE075600)

CS Sivakumar P Managing Partner COP: 2210 FCS: 3050 Date: June 12, 2020 Place: Kochi 111 Corporate Governance 112 Annual Report 2019-20

Business Responsibility Report

Section A: General Information about the Company 1. Corporate Identity Number (CIN) of the Company L65191KL1931PLC000368 2. Name of the Company The Federal Bank Limited 3. Registered address Federal Towers, P O Box No.103, Aluva, Kerala, India 683 101 4. Website www.federalbank.co.in 5. E-mail id [email protected] 6. Financial Year reported 2019-20 7. Sector(s) that the Company is engaged in Federal Bank is a banking company governed by (industrial activity code-wise) the Banking Regulation Act, 1949

8. List three key products/services that the The Federal Bank Limited (the Bank), incorporated in Aluva, Company manufactures/provides (as in balance sheet) Kerala, is a publicly held banking company engaged in providing banking and financial services including retail banking, corporate banking and treasury operations.

9. Total number of locations where business activity is undertaken by the Company i. Number of International Locations (Provide details of major 5) The Bank has got representative offices in Abu- Dhabi and Dubai ii. Number of National Locations As on 31st March 2020, Federal Bank had a network 1263 branches and 1937 ATMs/Cash Recyclers in 24 states, Delhi NCT and 4 union territories 10. Markets served by the Company The Bank serves customers in National and International locations

Section B: Financial Details of the Company 1. Paid up Capital (INR) ` 398.53 Cr 2. Total Turnover (INR)* ` 15142.16 Cr 3. Total profit after taxes (INR) ` 1542.78 Cr 4. Total Spending on Corporate Social Responsibility (CSR) as percentage of profit after tax (%) 2.75 % 5. List of activities in which expenditure in 4 above has been incurred a) Education b) Healthcare c) Youth engagement d) Disaster Relief e) Skill development *Total turnover represents the sum of “Interest earned” (Schedule 13 of the accounts) and “Other income” (Schedule 14 of the accounts).

Section C: Other Details 1. Does the Company have any Subsidiary Company/ Companies? Yes. The Bank has two subsidiaries 2. Do the Subsidiary Company/Companies participate in the BR No Initiatives of the parent company? If yes, then indicate the number of such subsidiary company(s) 3. Do any other entity/entities (e.g. suppliers, distributors etc.) that the Company does business with, participate in the BR initiatives of the Company? If yes, then indicate the percentage of such entity/entities? [Less than 30%, 30-60%, More than 60%]- No 113 Business Responsibility Report Section D: BR Information

1. Details of Director/Directors responsible for BR a) Details of the Director/Director responsible for implementation of the BR policy / policies • DIN Number : 05154975 • Name : Mr. Ashutosh Khajuria • Designation : Executive Director &CFO b) Details of the BR head

S.No. Particulars Details 1. DIN Number (if applicable) NA 2. Name Mr. Ajithkumar K K 3. Designation Executive Vice President & CHRO 4. Telephone number 02268516646 5. E-mail id [email protected]

2. Principle-wise (as per NVGs) BR Policy/policies (Reply in Y/N) The NVGs on social, environmental and economic responsibilities of business prescribed by the Ministry of Corporate Affairs advocates the nine principles (detailed below) as P1-P9 to be followed: P1 Businesses should conduct and govern themselves with Ethics, Transparency and Accountability P2 Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle P3 Businesses should promote the wellbeing of all employees P4 Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalized P5 Businesses should respect and promote human rights P6 Business should respect, protect, and make efforts to restore the environment P7 Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner P8 Businesses should support inclusive growth and equitable development P9 Businesses should engage with and provide value to their customers and consumers in a responsible manner

Sl. Questions P1 P2 P3 P4 P5 P6 P7 P8 P9 No. 1. Do you have a policy/policies for.... Y Y Y Y Y Y Y Y Y 2. Has the policy being formulated in consultation with the relevant stakeholders? Y Y Y Y Y Y Y Y Y 3. Does the policy conform to any national /international standards? If yes, specify? (50 words) * Y Y Y Y Y Y Y Y Y 4. Has the policy being approved by the Board? Is yes, has it been signed by MD/owner/CEO/appro- Y Y Y Y Y Y Y Y Y priate Board Director? Y Y Y Y Y Y Y Y Y 5. Does the company have a specified committee of the Board/ Director/Official to oversee the imple- Y Y Y Y Y Y Y Y Y mentation of the policy? 6. Indicate the link for the policy to be viewed online? https://www.federalbank.co.in/shareholder-infor- mation 7. Has the policy been formally communicated to all relevant internal and external stakeholders? Y Y Y Y Y Y Y Y Y 8. Does the company have in-house structure to implement the policy/policies? Y Y Y Y Y Y Y Y Y 9. Does the Company have a grievance redressal mechanism related to the policy/policies to address Y Y Y Y Y Y Y Y Y stakeholders’ grievances related to the policy/policies? 10. Has the company carried out independent audit/evaluation of the working of this policy by an Y Y Y Y Y Y Y Y Y internal or external agency?

114 Annual Report 2019-20

2 a. If answer to S. No. 1 against any principle, is ‘No’, please explain why: (Tick up to 2 options) Sl. No. Questions P1 P2 P3 P4 P5 P6 P7 P8 P9 1. The company has not understood the Principles 2. The company is not at a stage where it finds itself in a position to formulate and implement the policies on specified principles 3. The company does not have financial or manpower resources available for the task 4. It is planned to be done within next 6 months 5. It is planned to be done within the next 1 year 6. Any other reason (please specify)

P3 * Sr No 3- In line with the general laws and regulations and sound ethical practices followed nationally, the Bank has adopted employee oriented poli- cies covering areas such as employee benefits and sexual harassment at the workplace which endeavor to provide an environment of care, nurturing and opportunity to accomplish professional aspirations.

3. Governance related to BR • Indicate the frequency with which the Board of Directors, Committee of the Board or CEO to assess the BR performance of the Company. Within 3 months, 3-6 months, Annually, More than 1 year • Annually • Does the Company publish a BR or a Sustainability Report? What is the hyperlink for viewing this report? How frequently it is published? • The Bank has started publishing of Business Responsibility Report from FY 2017 onwards.

Section E: Principle-wise performance

Principle 1 1. Does the policy relating to ethics, bribery and corruption cover only the company? Does it extend to the Group/Joint Ventures/ Suppliers/Contractors/NGOs /Others? • Yes, the policy deals with Federal Bank,its suppliers, contractors and not extended to Group /JVs/NGOs/Others 2. How many stakeholder complaints have been received in the past financial year and what percentage was satisfactorily resolved by the management? If so, provide details thereof, in about 50 words or so. • We have received 2,00,249 customer complaints during the last FY 2019-20. We have resolved 99.99% of the customers’ complaints during the FY 2019-20. We have received 7 investor complaints during FY 2019-20 and have redressed 100% of investor complaints during the FY 2019-20. During the year 2019-20, we have received 3 complaints under PDS. All the complaints were investigated and report submitted to MD & CEO. Disciplinary action is taken against concerned employees in two cases and one complaint was found to be without any merit to resolve the issues involved.

Principle 2 1. List up to 3 of your products or services whose design has incorporated social or environmental concerns, risks and/or opportunities. • Federal Bank provides sustainable banking products to cater to different classes of customers through an extensive network of branches, ATMs, cash recyclers, and through technologies like mobile banking and internet banking. Bank offers many customized products include educational loans, home loans, loans for asset purchases and a wide range of savings bank products. Federal Bank Hormis Memorial Foundation focuses on the areas of elementary education, skill development, preventive healthcare, rural development and disaster relief. 2. For each such product, provide the following details in respect of resource use (Energy, water, raw material etc.) per unit of product(optional): i. Reduction during sourcing/production/ distribution achieved since the previous year throughout the value chain? • Not applicable for banking products ii. Reduction during usage by consumers (energy, water) has been achieved since the previous year? • Not applicable for banking products

115 Business Responsibility Report 3. Does the company have procedures in place for sustainable sourcing (including transportation)? • Not Applicable 4. Has the company taken any steps to procure goods and services from local & small producers, including communities surrounding their place of work? If yes, what steps have been taken to improve their capacity and capability of local and small vendors? • Not applicable 5. Does the company have a mechanism to recycle products and waste? If yes what is the percentage of recycling of products and waste (separately as <5%,5-10%, >10%). Also, provide details thereof, in about 50 words or so. • Not Applicable. Being a Banking service company, the Bank is not generating products and waste associated with a manufacturing concern.

Principle 3 1. Please indicate the Total number of employees. • The Bank had 12496 employees as on 31st March 2020 2. Please indicate the Total number of employees hired on temporary/contractual/casual basis. • The Bank had 221 employees as on 31st March 2020 on temporary basis. 3. Please indicate the Number of permanent women employees. • The Bank had 4405 permanent women employees as on 31st March 2020 (excluding Part time sweepers) 4. Please indicate the Number of permanent employees with disabilities • The Bank is an equal opportunity employer and treats all employees at par. Based on the income tax declarations which enable claiming income tax deduction for self-disability, the Bank had 20 such employees 5. Do you have an employee association that is recognized by management? • The Bank has an association for Officers (permitted members are Officers up to Scale III) and a Union for Award Staff (permitted members are Clerks & below), recognized by the management. Association for Officers is Federal Bank Officers’ Association (FBOA) and Union for Award Staff is Federal Bank Employees’ Union (FBEU). 6. What percentage of your permanent employees is members of this recognized employee association? • 70.84% of employees in Officer Cadre are members of Federal Bank Officers’ Association (FBOA) and 93.1% of employees in Award Staff cadre are members of Federal Bank Employees’ Union (FBEU). 7. Please indicate the Number of complaints relating to child labour, forced labour, involuntary labour, sexual harassment in the last financial year and pending, as on the end of the financial year.

S. Category No of complaints filed during No of complaints pending as on No. the financial year end of the financial year 1. Child labour/forced labour/involuntary labour Nil Nil 2. Sexual harassment 5 1 3. Discriminatory employment Nil Nil

8. What percentage of your under mentioned employees were given safety & skill up-gradation training in the last year? Permanent Employees 89.10% Permanent Women Employees 85.6% Casual/Temporary/Contractual Employees 84.2 % Employees with Disabilities We have not conducted any specific trainings for this category of employees

116 Annual Report 2019-20

Principle 4 1. Has the company mapped its internal and external stakeholders? • Yes 2. Out of the above, has the company identified the disadvantaged, vulnerable & marginalized stakeholders? • The Bank is guided by Reserve Bank of India (RBI) prescribed guidelines on priority sector lending, lending to small and marginal farmers, lending to weaker section etc., and government-led initiatives to improve access to financial services, insurance and pension cover for reaching out to disadvantaged, vulnerable and marginalized stakeholders. 3. Are there any special initiatives taken by the company to engage with the disadvantaged, vulnerable and marginalized stakeholders. If so, provide details thereof, in about 50 words or so. • The bank has also undertaken various other schemes for integrated and sustainable economic development by adopting the best prac- tices in the industry. The Bank is also an active participant in various schemes and initiatives undertaken by the government. The Bank, directly, and along with Federal Bank Hormis Memorial Foundation has been working on several initiatives for promotion of inclusive growth. CSR department of the Bank in tune with the CSR policy has worked towards the advancement of the society by undertaking various measures. The CSR activities of the Bank have a vast footprint touching various diverse fields like Health, Education, Environment sustainability, Inclusive Development Policies to name a few.

Principle 5 1. Does the policy of the company on human rights cover only the company or extend the Group/Joint Ventures/Suppliers/Contractors/ NGOs/Others? • Bank realize and respect the human rights of all its stakeholders and ensures through various policies or codes. The employees are required to follow code of ethics and business conduct, which also documents the ethical practices to be followed by them. Bank does not promote any kind of discrimination between its employees, customers and other stakeholders on the basis of race, caste, religion, sex etc. Bank follows the code issued by The Banking Codes and Standards Board of India, to ensure protection of customer’s rights. There are separate mechanisms to address the grievances of employees/customers and also on the complaints of sexual harassment at workplace. 2. How many stakeholder complaints have been received in the past financial year and what percent was satisfactorily resolved by the management? • We have received 2,00,249 customer complaints during the last FY 2019-20. We have resolved 99.99% of the customers’ complaints during the FY 2019-20. We have received 7 investor complaints during FY 2019-20 and have redressed 100% of investor complaints during the FY 2019-20. During the year 2019-20, we have received 3 complaints under PDS. All the complaints were investigated and report submitted to MD & CEO. Disciplinary action is taken against concerned employees in two cases and one complaint was found to be without any merit to resolve the issues involved.

Principle 6 1. Does the policy related to Principle 6 cover only the company or extends to the Group/Joint Ventures/Suppliers/Contractors/NGOs/others. • The policy extends only to the Bank 2. Does the company have strategies/ initiatives to address global environmental issues such as climate change, global warming, etc? Y/N. If yes, please give hyperlink for webpage etc. • Yes, https://www.federalbank.co.in/brr-initiatives-fy20 3. Does the company identify and assess potential environmental risks? Y/N • Yes. The Bank assesses environmental and social impacts associated with large credit proposals as part of the appraisal process. 4. Does the company have any project related to Clean Development Mechanism? If so, provide details thereof, in about 50 words or so. Also, if Yes, whether any environmental compliance report is filed? • The Bank is not a manufacturing concern and does not generate waste or products or byproducts generally associated with manufacturing. 5. Has the company undertaken any other initiatives on – clean technology, energy efficiency, renewable energy, etc. Y/N. If yes, please give hyperlink for web page etc. • Not Applicable 6. Are the Emissions/Waste generated by the company within the permissible limits given by CPCB/SPCB for the financial year being

117 Business Responsibility Report reported? • Not Applicable 7. Number of show cause/ legal notices received from CPCB/SPCB which are pending (i.e. not resolved to satisfaction) as on end of Financial Year. • Nil

Principle 7 1. Is your company a member of any trade and chamber or association? If Yes, Name only those major ones that your business deals with: • Federal Bank has since long been associated with many trade and industry associations. The Bank has through these associations been able to understand the industry and develop schemes which would be beneficial to the organization in the long run. The members of our senior management participate in various committees/ working groups constituted by the Government of India and the Reserve Bank of India. Federal Bank is a member of the following associations- a. Indian Banks Association b. Indian Institute of Banking and Finance c. Indo Australian Chamber of Commerce and Industry d. Kerala Management Association e. The Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry(FTAPCCI) f. Indian Chamber of Commerce & Industry, Cochin g. National Institute of Bank Management h. Confederation of Indian Industry and CII Indian Women Network i. Cochin Chamber of Commerce j. Madras Chamber of Commerce and Industry 2. Have you advocated/lobbied through above associations for the advancement or improvement of public good? Yes/No; if yes specify the broad areas (drop box: Governance and Administration, Economic Reforms, Inclusive Development Policies, Energy security, Water, Food Security, Sustainable Business Principles, Others) • The Bank, through trade bodies and associations, puts forth a number of suggestions with respect to the economy in general and the banking sector in particular. The Bank has also undertaken various other schemes for integrated and sustainable economic development by adopting the best practices in the industry. The Bank is also an active participant in various schemes and initiatives undertaken by the government. The Bank, directly, and along with Federal Bank Hormis Memorial Foundation has been working on several initiatives for promotion of inclusive growth. The CSR department of the Bank in tune with the CSR policy has worked towards the advancement of the society by undertaking various measures. The CSR activities of the Bank have a huge footprint touching various diverse fields like Health, Education, Skill Development, Environment sustainability, Inclusive Development Policies to name a few. In the background of Phulwama Attack, as a mark of respect to our brave soldiers, Bank had announced donation of `1.00 per each transaction through our Retail Digital Channels done during the period from 01.03.2019 to 31.03.2019 to Army Welfare Fund. In the field of Health, CSR department tied up with with Sree Chithira Thirunal Institute of Medical Science & Technology and has set up a Comprehensive Center for Cognitive Rehabilitation of Children with Neuro disorders. We have provided support to various institutions, such as, Ambedkar Memorial District Cancer Centre, Manathavady, Wayanad for purchasing a brand new 125 KVA radiator cooled DG set, Little Flower Hospital, Angamaly for setting up a Modern Intensive Care Unit (ICU) . Mar Augustine Golden Jubilee Hospital (MAGJ Hospital), Mookkannur for installing Blood Component Separation Unit at their Blood Bank and support to Cancer Patients in Ernakulam General Hospital for meeting their expenses incurred for Chemo medicines. In the sphere of education, the Bank has set up skill academies at Kochi, Coimbatore, Kolhapur and Karnal for Skill development for youth from economically backward sectors. The Bank along with the Federal Bank Hormis Memorial Foundation is providing scholarships to the needy students for pursuing profes- sional courses from the year 2005-06. From FY 2019-20, additional Scholarships added for the benefit of wards of martyred Armed Forces Personnel. During the year 2019-20 the Federal Bank Hormis Memorial Foundation offered assistance to 113 meritorious students, 20 students from

118 Annual Report 2019-20

each streams – Medicine, Engineering, BSc (Agri), MBA & 32 students from BSc Nursing, adding 12 more students to this category than the previous year. The Bank has also undertaken various other schemes for integrated and sustainable economic development by adopting the best prac- tices in the industry. Bank is also an active participant in various schemes and initiatives undertaken by the government. Our Bank had embarked on a mission of digitization of Villages. This year we have started with Mankol Village in Gujarat, Venmony Village in Kerala, Gudha Village,in Haryana & Mardhala, in Mangalore,Karnataka . The process is already started in all the four villages. The digitization and village adoption programme in villages Mankol, Gudha and Venmony were nearing completion by March, but its culmination got delayed due to Covid 19 outbreak. During August 2019, heavy southwest monsoon created enormous havoc in the different parts of our country, claiming lives, damaging houses and destroying crops. Gujarat, Kerala, Karnataka and Maharashtra were severely affected. In Kerala, Malappuram and Wayanad Districts, were the worst hit due to landslides and heavy rain. Maharashtra, was one of the worst affected states due to the incessant rains and nearly 4.48 lakh people were evacuated mostly from Kolhapur District. As a token of our support to the flood affected people, CSR depatment had sanctioned various relief measures like construction of 34 houses at Edakkara, Malappuram in Kerala for flood affected SC/ST families in land allotted by the Government. Also floods that happened in August 2019 affected Kolhapur District of Maharashtra State, claiming lives, damaging houses and de- stroying crops. CSR department selected two villages-Bastwad, Rajapurwadi in Kolhapur District for various relief activities which includes construction of 80 houses, schools, providing milch cows and various relief activities. The above projects at Malappuram & Kolhapur are almost completed. Support was extended to Paradip Municipality for repair, reconstruction and renovation of their Aahar Kendra, at Athabanki, Paradip, Orissa, which was destroyed in Fani Cyclone. To build awareness amongst student fraternity to conserve the earth’s natural resources, Federal Bank joined with Mathrubhumi in the SEED Programme since 2012. SEED (Student Empowerment for Environmental Development) is an initiative aimed at spreading the message of ecological conservation. Schools carry out simple but effective steps in environment protection like Planting & Protection of saplings, Agricultural Activities, Bio-diversity conservation, Energy Conservation, Conservation of Water bodies, Cleanliness & protection of public health, Reduce, Reuse and Recycle Plastic waste and intervention in local area environmental issues through SEED Police. Bank is supporting this noble cause for the past seven years. As part of Swatch Bharat initiatives, we have provided support to Thiruverkadu Municipality for construction of 100 toilets for the houses in and around Thiruverkadu Municipality ; DRDA, Dharmapuri for renovation of traditional ponds and Tirunelveli Corporation for solid waste management.

Principle 8 1. Does the company have specified programmes/initiatives/projects in pursuit of the policy related to Principle 8? If yes details thereof. • The major initiative taken up is in the area of skill development through the Federal Skill academies set up at Kochi, Karnal, Kohlapur & Coimbatore for Skill development for youth from economically backward sectors. Through Federal Bank Hormis Memorial Foundation Scholarship, Bank is offering scholarships for 113 meritorious students from families deserving support. The Bank also pursues initiatives in the area of disaster management and rural development, including efforts to improve financial inclu- sion and provide access to savings account, insurance and pension products. 2. Are the programmes/projects undertaken through in-house team/own foundation/external NGO/government structures/any other organization? • The projects/programmes are undertaken primarily through in-house teams and Federal Bank Hormis memorial Foundation, with the assistance of implementation partners as required. 3. Have you done any impact assessment of your initiative? • CSR department of the Bank is undertaking the impact assessment of the major initiatives. Feedback taken from the beneficiaries, implementation partners and the same is reviewed and correcting measures are taken whenever required. 4. What is your company’s direct contribution to community development projects- Amount in INR and the details of the projects undertaken • The Bank had spent Rs.42.40 Cr in FY 2019-20 on corporate social responsibility related activities. The expenditure has been undertaken primarily on skill development, disaster relief, sustainable livelihoods, education, healthcare and rural development related activities like financial inclusion and financial literacy and digitization of adopted village.

119 Business Responsibility Report 5. Have you taken steps to ensure that this community development initiative is successfully adopted by the community? Please explain in 50 words, or so. • The projects undertaken by Federal Bank Hormis Memorial Foundation are designed to the needs of the target group. The foundation had taken many initiatives in community development such as Village adoption & Digitization of villages, providing housing and sanita- tion etc.

Principle 9 1. What percentage of customer complaints/consumer cases are pending as on the end of financial year. • We have resolved 99.99% of the customers’ complaints during the fiscal 2020. We have a pending of 0.01% of complaints. 2. Does the company display product information on the product label, over and above what is mandated as per local laws? Yes/No/N.A. /Remarks (additional information) • NA 3. Is there any case filed by any stakeholder against the company regarding unfair trade practices, irresponsible advertising and/or anti- competitive behaviour during the last five years and pending as on end of financial year? If so, provide details thereof, in about 50 words or so. • No 4. Did your company carry out any consumer survey/ consumer satisfaction trends? • We had carried out a customer survey during the financial year 2019-20 too. This time the benchmark was Net Promoter Score. The feedback received from customers through the surveys forms a key input to our ongoing process improvements thus bringing a delightful experience for our customers.

120 Annual Report 2019-20

121 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF THE FEDERAL BANK LIMITED Report on the Audit of the Standalone Financial Statements

Opinion We have audited the accompanying standalone financial statements Accountants of India together with the ethical requirements that are of The Federal Bank Limited (the ‘Bank’), which comprise the stan- relevant to our audit of the standalone financial statements under dalone balance sheet as at 31 March 2020, the standalone profit and the provisions of the Act and the Rules thereunder, and we have loss account, the standalone cash flow statement for the year then fulfilled our other ethical responsibilities in accordance with these ended, and notes to the standalone financial statements, including requirements and the Code of Ethics. We believe that the audit a summary of the significant accounting policies and other explana- evidence we have obtained, is sufficient and appropriate to provide a tory information. basis for our opinion on the standalone financial statements.

In our opinion and to the best of our information and according Emphasis of matter to the explanations given to us, the aforesaid standalone financial As more fully described in Note 1.4.6.(B)-7 to the standalone financial statements give the information required by the Banking Regulation statements, the extent to which the COVID-19 pandemic will have an Act, 1949 as well as the Companies Act, 2013 (the ‘Act’) in the impact on the Bank’s financial performance is dependent on future manner so required for banking companies and give a true and fair developments, which are highly uncertain. view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Bank as at 31 March 2020, and Our opinion is not modified in respect of this matter. its profit, and its cash flows for the year ended on that date. Key audit matters Basis of Opinion Key audit matters are those matters that, in our professional We conducted our audit in accordance with the Standards on judgment, were of most significance in our audit of the standalone Auditing (‘SAs’) specified under Section 143 (10) of the Act. Our financial statements of the current period. These matters were responsibilities under those SAs are further described in the Auditor’s addressed in the context of our audit of the standalone financial Responsibilities for the Audit of the Standalone Financial Statements statements as a whole, and in forming our opinion thereon, and we section of our report. We are independent of the Bank in accordance do not provide a separate opinion on these matters. with the Code of Ethics issued by the Institute of Chartered

Description of Key Audit Matters

Identification of Non-Performing Assets (‘NPAs’) and Provision on Advances Gross NPA: INR 3,530.83 crore for year ended 31 March 2020 Charge (including write-off): INR 1,010.47 crore for year ended 31 March 2020 NPA Provision: INR 1,885.27 crore as at 31 March 2020 Refer to the accounting policies in the "Standalone Financial Statements: Significant Accounting Policies- Use of estimates and Advances and Note 1.4 and Note 3.1 of Schedule 18 to the Standalone Financial Statements: Advances” The key audit matter How the matter was addressed in our audit Significant estimate and judgment involved Our key audit procedures included: Identification of NPAs is made based on the assessment of various Design / controls criteria stipulated in the Reserve Bank of India (‘RBI’) guidelines  Assessing the design, implementation and operating with regard to the ‘Prudential Norms on Income Recognition, Asset effectiveness of key internal controls over approval, recording Classification and Provisioning’ (‘RBI Guidelines’). NPA classification and monitoring of loans, appointment/empanelment of is made borrower wise whereby if one facility to the borrower valuers, monitoring process of overdue loans (including those becomes an NPA then all facilities to such a borrower will be treated which became overdue subsequent to the reporting date), as an NPA. measurement of NPA provision, identification of NPA accounts and assessing the reliability of management information, which Provisions in respect of such NPAs and restructured advances included overdue reports. Also, assessing how management are made based on management’s assessment of the degree of has factored in the deterioration in the overall economic impairment of the advances subject to and guided by the minimum environment arising from COVID-19 in its NPA assessment. provisioning levels prescribed under RBI guidelines, prescribed from  Understanding management's approach, interpretation, time to time. The provision on NPAs are also based on the valuation systems and controls implemented in relation to NPA of the security available. In case of restructured accounts, provision computation, particularly in light of the COVID-19 regulatory is made in accordance with the RBI guidelines. package.

122 Annual Report 2019-20

The key audit matter How the matter was addressed in our audit We identified NPA identification and provision on loans and advances  For corporate loans we tested controls over the internal ratings as a key audit matter because of the significant efforts involved by process, monitoring of stressed accounts including credit file the management in identifying NPAs based on the RBI Guidelines, review processes and review controls over the approval of the level of management judgement involved in determining the significant individual impairment provisions. provision (including the provisions on assets which are not classified  Evaluated the design, implementation and operating as NPAs), the valuation of security of the NPAs and on account of effectiveness of key internal controls over the valuation of the the significance of these estimates to the financial statements of securities for NPAs and the Special Mention Accounts (‘SMA’). the Bank.  Testing of management review controls over credit impairment indicators. On 11 March 2020, the World Health Organization declared the  Involved our information systems specialist in the audit of this Novel Coronavirus (COVID-19) outbreak to be a pandemic. area to obtain evidence and get assurance over data integrity We have identified the impact of, and uncertainty related to the and calculations, including system reconciliations. COVID-19 pandemic as a key event and consideration for recognition Substantive tests and measurement of NPAs on account of:  Test of details for a selection of exposures over calculation of  Short- and long-term macroeconomic effect on businesses in NPA provisions including valuation of collaterals for NPAs as the country and globally and its consequential first order and at 31 March 2020; provisioning determined by the Bank and cascading negative impact on revenue and employment generation also testing related disclosures by assessing the completeness, opportunities; accuracy and relevance of data and to ensure that the same is in compliance with the RBI guidelines with regard to the  impact of the pandemic on the Bank’s customers and their ability Prudential Norms on Income Recognition, Asset Classification to repay dues; and and Provisioning.  application of regulatory package and relaxations announced by  Further for the accounts which meet the criteria for asset the Reserve Bank of India (RBI) on asset classification, regulatory classification benefit in accordance with the Reserve Bank of reporting and provisioning. India COVID-19 Regulatory Package, as per days past due status at 29 February 2020, testing calculation of provisions in line Management has conducted an assessment of the loan portfolio with the prescribed percentage. which may be impacted on account of COVID-19 with respect  We selected samples (based on quantitative and qualitative to moratorium benefit and provision computation to borrowers thresholds) of large corporates where impairment indicators had prescribed by the RBI and also considered qualitative factors to been identified by management. We obtained management’s evaluate the need of recording contingency provision on the assessment of the recoverability of these exposures (including identified pool of loans at 31 March 2020. individual provisions calculations) and challenged whether individual provisions, or lack of, were appropriate.  This included the following procedures: − Reviewing the statement of accounts, approval process, board and credit committees minutes, credit review of customer, review of Special Mention Accounts (‘SMA’) reports and other related documents to assess recoverability and the classification of the facility; − Assessed external collateral valuer’s credentials and comparing external valuations to values used in management’s assessments; and − For a selection of corporate loans not identified as displaying indicators of deterioration by management, challenged this assessment by reviewing the historical performance of the customer and assessed whether any impairment indicators were present.  Evaluating management rationale for the creation of additional provision contingency / general provision/ on identified pool of loans reflecting impact of COVID-19.  Assessing the factual accuracy and appropriateness of the additional financial statements disclosures made by the Bank regarding impact of COVID-19.

123 Financial Statements of Bank Federal The key audit matter How the matter was addressed in our audit Valuation of Financial Instruments (Investements) Gross value of investments : INR 36,335.94 crore as at 31 March 2020 Mark to market: INR 443.26 crore as at 31 March 2020 Net value of investements : INR 35,892.68 crore as at 31 March 2020 Refer to the accounting policies in "Schedule 17 to the Financial Statements: Significant Accounting Policies- Investments" and "Schedule 8 to the Financial Statements: Investments” Significant estimate and judgment involved Our key audit procedures included: Investments Design / controls Investments are classified into ‘Held for Trading’ (‘HFT’), ‘Available We tested the design, implementation and operating effectiveness of for Sale’ (‘AFS’) and ‘Held to Maturity’ (‘HTM’) categories at the management’s key internal controls over the valuation process and in- time of purchase. Investments, which the Bank intends to hold till dependent price verification, including the Bank’s review and approval maturity are classified as HTM investments. of the estimates and assumptions used for the valuation including key Investments classified as HTM are carried at amortised cost. Where authorization and data input controls; in the opinion of management, a diminution, other than tem- We assessed appropriateness of the valuation methodologies with ref- porary, in the value of investments has taken place, appropriate erence to RBI guidelines and Bank’s own valuation policy; provisions are made. Read investment agreements / term sheets entered into during the Investments classified as AFS and HFT are marked- to-market on a current year, on a sample basis, to understand the relevant investment periodic basis as per the relevant RBI guidelines. terms and identify any conditions that were relevant to the valuation We identified valuation of investments as a key audit matter of financial instruments. because of the management judgement involved in determin- We tested the controls operated at the Bank for ensuring complete- ing the value of certain investments (Bonds and Debentures, Pass ness of the investments. through certificates) based on the policy and model developed by Substantive tests the Bank, impairment assessment for HTM book and the overall We verified the list of investments from eKuber for SLR securities and significance to the financial results of the Bank. DP statements for Non-SLR securities. We independently verified the fair valuation of investments ona sample basis with direct observable inputs and external input data such as market value from 'Financial Benchmarks India Private Limited ('FBIL')', spreads from 'The Fixed Income Money Market and Derivatives Association of India ('FIMMDA')' etc after considering the require- ments of RBI guidelines. We assessed that the financial statement disclosures appropriately reflected the Bank’s exposure to investments valuation risks with refer- ence to the requirements of the prevailing accounting standards and the RBI guidelines.

Information technology (‘IT’) systems IT systems and automated controls Our key IT audit procedures included:

The Bank’s key financial accounting and reporting processes are • We focused on user access management, change management, highly dependent on information systems including automated segregation of duties, system reconciliation controls and system controls in systems, such that there exists a risk that gaps in the IT application controls over key financial accounting and reporting control environment could result in the financial accounting and systems. reporting records being materially misstated. The Bank uses several • We tested a selection of key controls operating over the systems for its overall financial reporting. information technology in relation to financial accounting and In addition, large transaction volumes and the increasing challeng- reporting systems, including system access and system change es to protect the integrity of the Bank’s systems and data, cyber management, program development and computer operations. security has become a more significant risk in recent periods. • We tested the design and operating effectiveness of key controls Further, the prevailing COVID-19 situation, has caused the required over user access management which includes granting access IT applications to be made accessible on a remote basis. right, new user creation, removal of user rights and preventative controls designed to enforce segregation of duties.

124 Annual Report 2019-20

The key audit matter How the matter was addressed in our audit

We have identified ‘IT systems and automated controls’ as key • For a selected group of key controls over financial and reporting audit matter because of the high level automation, significant system, we have performed procedures to determine that these number of systems being used by the management and the com- controls remained unchanged during the year or were changed plexity of the IT architecture. following the standard change management process. • We have also assessed other areas which includes password policies, security configurations, system interface controls, controls over changes to applications and databases and that business users, developers and production support did not have access to change applications, the operating system or databases in the production environment. • Security configuration review and related tests on certain critical aspects of cyber security on network security management mechanism, operational security of key information infrastructure, data and client information management, monitoring and emergency management. • Assessment of data security controls in the context of a large population of staff working from remote location at the year end.

Information other than the standalone financial statements 133 of the Act, provisions of Section 29 of the Banking Regulation and Auditor’s Report thereon Act, 1949 and the circulars and guidelines issued by Reserve Bank The Bank’s management and Board of Directors are responsible of India (‘RBI’) from time to time. This responsibility also includes for the other information. The other information comprises the maintenance of adequate accounting records in accordance with information included in the Bank’s Annual report, but does not the provisions of the Act, for safeguarding of the assets of the Bank include the standalone financial statements and our auditor’s report and for preventing and detecting frauds and other irregularities; thereon. The Bank’s Annual report is expected to be made available selection and application of appropriate accounting policies; making to us after the date of this auditor’s report. judgments and estimates that are reasonable and prudent; and Our opinion on the standalone financial statements does not cover design, implementation and maintenance of adequate internal the other information and we will not express any form of assurance financial controls that were operating effectively for ensuring the conclusion thereon. accuracy and completeness of the accounting records, relevant to the preparation and presentation of the standalone financial In connection with our audit of the standalone financial statements, statements that give a true and fair view and are free from material our responsibility is to read the other information identified above misstatement, whether due to fraud or error. when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the standalone In preparing the standalone financial statements, the Management financial statements or our knowledge obtained in the audit or and Board of Directors are responsible for assessing the Bank’s ability otherwise appears to be materially misstated. to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of When we read the Bank’s Annual Report, if we conclude that there accounting unless the Management and Board of Directors either is a material misstatement therein, we are required to communicate intends to liquidate the Bank or to cease operations, or has no the matter to those charged with governance. realistic alternative but to do so. Management’s and Board of Director’s Responsibility for the The Board of Directors is also responsible for overseeing the Bank’s Standalone Financial Statements financial reporting process. The Bank’s management and Board of Directors are responsible for the matters stated in Section 134(5) of the Act with respect to the Auditor’s Responsibilities for the Audit of the Standalone Financial Statements preparation of these standalone financial statements that give a true and fair view of the state of affairs, profit and cash flows of the Bank Our objectives are to obtain reasonable assurance about whether the in accordance with the accounting principles generally accepted in standalone financial statements as a whole are free from material India, including the Accounting Standards specified under Section misstatement, whether due to fraud or error, and to issue an auditor’s

125 Financial Statements of Bank Federal report that includes our opinion. Reasonable assurance is a high in internal control that we identify during our audit. level of assurance but is not a guarantee that an audit conducted We also provide those charged with governance with a statement in accordance with SAs will always detect a material misstatement that we have complied with relevant ethical requirements regarding when it exists. Misstatements can arise from fraud or error and are independence, and to communicate with them all relationships considered material if, individually or in the aggregate, they could and other matters that may reasonably be thought to bear on our reasonably be expected to influence the economic decisions of users independence, and where applicable, related safeguards. taken on the basis of these standalone financial statements. From the matters communicated with those charged with As part of an audit in accordance with SAs, we exercise professional governance, we determine those matters that were of most judgment and maintain professional skepticism throughout the significance in the audit of the standalone financial statements audit. We also: of the current period and are therefore the key audit matters. • identify and assess the risks of material misstatement of the We describe these matters in our auditor’s report unless law or standalone financial statements, whether due to fraud or error, regulation precludes public disclosure about the matter or when, in design and perform audit procedures responsive to those risks, extremely rare circumstances, we determine that a matter should not and obtain audit evidence that is sufficient and appropriate be communicated in our report because the adverse consequences to provide a basis for our opinion. The risk of not detecting a of doing so would reasonably be expected to outweigh the public material misstatement resulting from fraud is higher than for interest benefits of such communication. one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of Report on other legal and regulatory requirements internal control. The standalone balance sheet and the standalone profit and loss • obtain an understanding of internal control relevant to the audit account have been drawn up in accordance with the provisions of in order to design audit procedures that are appropriate in the Section 29 of the Banking Regulation Act, 1949 and Section 133 of circumstances. Under section 143(3)(i) of the Act, we are also the Act. responsible for expressing our opinion on whether the Bank has A. As required by sub-section (3) of Section 30 of the Banking Reg- adequate internal financial controls with reference to standalone ulation Act, 1949, we report that: financial statements in place and the operating effectiveness of (a) we have obtained all the information and explanations such controls. which, to the best of our knowledge and belief, were neces- • evaluate the appropriateness of accounting policies used and sary for the purpose of our audit and have found them to be the reasonableness of accounting estimates and related dis- satisfactory; closures in the standalone financial statements made by the (b) the transactions of the Bank, which have come to our notice, Management and Board of Directors. have been within the powers of the Bank; and • conclude on the appropriateness of the Management and Board (c) since the key operations of the Bank are automated with of Directors use of the going concern basis of accounting and, the key applications integrated to the core banking systems, based on the audit evidence obtained, whether a material un- the audit is carried out centrally as all the necessary records certainty exists related to events or conditions that may cast and data required for the purposes of our audit are avail- significant doubt on the Bank’s ability to continue as a going able therein. However, during the course of our audit we concern. If we conclude that a material uncertainty exists, we have visited 80 branches. Returns from 1,219 branches were are required to draw attention in our auditor’s report to the received duly audited by other auditors and were found related disclosures in the standalone financial statements or, adequate for the purpose of our audit. if such disclosures are inadequate, to modify our opinion. Our B. Further, as required by Section 143(3) of the Act, we report that: conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or condi- (a) we have sought and obtained all the information and expla- tions may cause a Bank to cease to continue as a going concern. nations which to the best of our knowledge and belief were necessary for the purposes of our audit; • evaluate the overall presentation, structure and content of the standalone financial statements, including the disclosures, and (b) in our opinion, proper books of account as required by law whether the standalone financial statements represent the un- have been kept by the Bank so far as it appears from our derlying transactions and events in a manner that achieves fair examination of those books; presentation. (c) The reports on the accounts of 1,219 branches of the Bank We communicate with those charged with governance regarding, audited by branch auditors under Section 143(8) of the Act among other matters, the planned scope and timing of the audit have been forwarded to us and have been properly dealt and significant audit findings, including any significant deficiencies with by us in preparing this report

126 Annual Report 2019-20

(d) the standalone balance sheet, the standalone profit and loss contracts – Refer Note 4.12 to the standalone financial account, and the standalone cash flow statement dealt with statements; and by this Report are in agreement with the books of account; iii. there has been no delay in transferring amounts, required (e) in our opinion, the aforesaid standalone financial statements to be transferred, to the Investor Education and Protection comply with the Accounting Standards specified under Fund by the Bank. Section 133 of the Act, to the extent they are not inconsist- iv. The disclosures required on holdings as well as dealing in ent with the accounting policies prescribed by RBI; Specified bank notes during the period from 8 November (f) on the basis of the written representations received from the 2016 to 30 December 2016 as envisaged in notification directors as on 31 March 2020 taken on record by the Board G.S.R. 308(E) dated 30 March 2017 issued by the Ministry of Directors, none of the directors is disqualified as on 31 of Corporate Affairs is not applicable to the Bank. March 2020 from being appointed as a director in terms of D. With respect to the matter to be included in the Auditors’ Report Section 164 (2) of the Act; and under section 197(16) of the Act: (g) with respect to the adequacy of the internal financial The Bank is a banking company as defined under Banking controls with reference to standalone financial statements Regulation Act, 1949. Accordingly, the requirements prescribed of the Bank and the operating effectiveness of such controls, under Section 197 of the Companies Act, 2013 do not apply. refer to our separate Report in ‘Annexure A’. C. With respect to the other matters to be included in the Auditor’s

Report in accordance with Rule 11 of the Companies (Audit and For B S R & Co. LLP For M.M. Nissim & Co. Auditors) Rules, 2014, in our opinion and to the best of our Chartered Accountants Chartered Accountants information and according to the explanations given to us: Firm's Registration No: Firm's Registration No: 101248W / W-100022 107122W i. the Bank has disclosed the impact of pending litigations as at 31 March 2020 on its financial position in its standalone Akeel Master Varun P Kothari financial statements – Refer Schedule 12 and Note 4.7 of Partner Partner schedule 18 to the standalone financial statements; Membership No: 046768 Membership No: 115089 ICAI UDIN: 20046768AAAAIL7772 ICAI UDIN: 20115089AAAAIM3669 ii. the Bank has made provision, as required under the appli- cable law or accounting standards, for material foreseeable Mumbai Mumbai losses, if any, on long-term contracts including derivative 28 May, 2020 28 May, 2020

127 Financial Statements of Bank Federal ANNEXURE A TO THE INDEPENDENT AUDITORS’ REPORT financial controls with reference to financial statements based on our ON THE STANDALONE FINANCIAL STATEMENTS OF THE audit. We conducted our audit in accordance with the Guidance Note FEDERAL BANK LIMITED FOR THE YEAR ENDED 31 MARCH and the Standards on Auditing, prescribed under section 143(10) 2020. of the Act, to the extent applicable to an audit of internal financial Report on the internal financial controls with reference to the controls with reference to financial statements. Those Standards and aforesaid standalone financial statements under Clause (i) of the Guidance Note require that we comply with ethical requirements Sub-section 3 of Section 143 of the Companies Act, 2013 and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls with reference to (Referred to in paragraph (B)(g) under ‘Report on Other Legal and Regulatory Requirements’ section of our report of even financial statements were established and maintained and whether date) such controls operated effectively in all material respects.

Opinion Our audit involves performing procedures to obtain audit evidence We have audited the internal financial controls with reference to about the adequacy of the internal financial controls with reference financial statements of The Federal Bank Limited (“the Bank”) as to financial statements and their operating effectiveness. Our audit of 31 March 2020 in conjunction with our audit of the standalone of internal financial controls with reference to financial statements financial statements of the Bank for the year ended on that date. included obtaining an understanding of such internal financial In our opinion, the Bank has, in all material respects, adequate controls, assessing the risk that a material weakness exists, and internal financial controls with reference to financial statements and testing and evaluating the design and operating effectiveness of such internal financial controls were operating effectively as at 31 internal control based on the assessed risk. The procedures selected March 2020, based on the internal financial controls with reference depend on the auditor’s judgement, including the assessment of the to financial statements criteria established by the Bank considering risks of material misstatement of the standalone financial statements, the essential components of internal control stated in the Guidance whether due to fraud or error. Note on Audit of Internal Financial Controls Over Financial Reporting We believe that the audit evidence we have obtained is sufficient and issued by the Institute of Chartered Accountants of India (the appropriate to provide a basis for our audit opinion on the Bank’s “Guidance Note”). internal financial controls with reference to financial statements. Management’s Responsibility for Internal Financial Controls Meaning of Internal Financial controls with Reference to The Bank’s management and the Board of Directors are responsible Financial Statements for establishing and maintaining internal financial controls based on A Bank's internal financial controls with reference to financial the internal financial controls with reference to financial statements statements is a process designed to provide reasonable assurance criteria established by the Bank considering the essential components regarding the reliability of financial reporting and the preparation of internal control stated in the Guidance Note. These responsibilities of financial statements for external purposes in accordance with include the design, implementation and maintenance of adequate generally accepted accounting principles. A Bank's internal financial internal financial controls that were operating effectively for ensuring controls with reference to financial statements include those policies the orderly and efficient conduct of its business, including adherence and procedures that (1) pertain to the maintenance of records that, to Bank’s policies, the safeguarding of its assets, the prevention and in reasonable detail, accurately and fairly reflect the transactions detection of frauds and errors, the accuracy and completeness of the and dispositions of the assets of the Bank; (2) provide reasonable accounting records, and the timely preparation of reliable financial assurance that transactions are recorded as necessary to permit information, as required under the Companies Act, 2013 (hereinafter preparation of financial statements in accordance with generally referred to as “the Act”). accepted accounting principles, and that receipts and expenditures Auditors’ Responsibility of the Bank are being made only in accordance with authorisations of management and directors of the Bank; and (3) provide reasonable Our responsibility is to express an opinion on the Bank's internal assurance regarding prevention or timely detection of unauthorised

128 Annual Report 2019-20

acquisition, use, or disposition of the Bank's assets that could have a material effect on the financial statements.

Inherent Limitations of Internal Financial controls with Reference to Financial Statements Because of the inherent limitations of internal financial controls with reference to financial statements, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls with reference to financial statements to future periods are subject to the risk that the internal financial controls with reference to financial statements may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

For B S R & Co. LLP For M.M. Nissim & Co. Chartered Accountants Chartered Accountants Firm's Registration No: Firm's Registration No: 101248W / W-100022 107122W

Akeel Master Varun P Kothari Partner Partner Membership No: 046768 Membership No: 115089 ICAI UDIN: 20046768AAAAIL7772 ICAI UDIN: 20115089AAAAIM3669

Mumbai Mumbai 28 May, 2020 28 May, 2020

129 Financial Statements of Bank Federal

THE FEDERAL BANK LIMITED

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2020 ( `in Thousands) Year ended Year ended March 31, 2020 March 31, 2019 Cash Flow from Operating Activities Net Profit before taxes 20,325,311 19,072,483 Adjustments for: Depreciation on Bank's Property 1,194,574 1,203,754 Depreciation on Investments 631,899 1,029,281 Amortisation of Premium on Held to Maturity Investments 740,116 528,891 Provision for Non Performing Investments 53,733 202,800 Provision / Charge for Non Performing Assets 10,104,711 6,305,490 Provision for Standard Assets 990,800 978,600 (Profit)/Loss on sale of fixed assets (net) (53,538) (181,892) Provision for Restructured assets (103,017) - Provision for Other Contingencies 43,546 42,365 33,928,135 29,181,772 Adjustments for working capital changes:- (Increase)/ Decrease in Investments [excluding Held to Maturity Investments] 3,363,545 20,378,850 (Increase)/ Decrease in Advances (130,554,322) (188,960,295) (Increase)/ Decrease in Other Assets (25,712,129) (7,032,270) Increase/ (Decrease) in Deposits 173,357,405 229,618,578 Increase/ (Decrease) in Other liabilities and provisions 1,221,597 5,516,593 21,676,096 59,521,456 Direct taxes paid (6,763,477) (6,994,357) Net Cash Flow from / (Used in) Operating Activities 48,840,754 81,708,871 Cash Flow from Investing Activities Purchase of Fixed Assets (1,304,656) (1,383,621) Proceeds from Sale of Fixed Assets 84,178 215,049 Investment in Subsidiaries (642,000) (50,000) Investment in Associate (6,661) (68,490) (Increase)/ Decrease in Held to Maturity Investments (44,822,695) (32,455,312) Net Cash generated / (Used in) Investing Activities (46,691,834) (33,742,374)

132 Annual Report 2019-20

THE FEDERAL BANK LIMITED

CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) ( `in Thousands) Year ended Year ended March 31, 2020 March 31, 2019 Cash Flow from Financing Activities Proceeds from Issue of Share Capital 15,229 25,811 Proceeds from Share Premium 313,052 527,938 Proceeds from Issue of Subordinate Debt 3,000,000 - Increase/(Decrease) in Borrowings (Excluding Subordinate Debt) 22,911,027 (37,521,757) Dividend Paid (Including Tax on Dividend) (3,354,125) (2,387,105) Net Cash generated from Financing Activities 22,885,183 (39,355,113) Effect of exchange fluctuation on translation reserve 43,697 22,542 Net Increase in Cash and Cash Equivalents 25,077,800 8,633,926 Cash and Cash Equivalents at the beginning of year 100,668,013 92,034,087 Cash and Cash Equivalents at the end of year 125,745,813 100,668,013

Note: Cash and Cash Equivalents comprise of Cash in hand (including foreign currency notes), Balances with Reserve Bank of India, Balances with banks and money at call and short notice (Refer Schedules 6 and 7 of the Balance Sheet)

For and on behalf of the Board of Directors

Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN: 08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN: 06765216) (DIN:02274773)

As per our report of even date Directors:

For B S R & Co. LLP For M. M. Nissim & Co. Shubhalakshmi Panse (DIN : 02599310) Chartered Accountants Chartered Accountants C Balagopal (DIN : 00430938) Firm's Reg.No: 101248W/W-100022 Firm's Registration No: 107122W A P Hota (DIN : 02593219) K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648)

Manoj Fadnis (DIN : 01087055) Akeel Master Varun P. Kothari Sudarshan Sen (DIN : 03570051) Partner Partner Membership No.046768 Membership No. 115089 Place: Mumbai Place: Mumbai

Place: Kochi Date : May 28, 2020

133 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET ( `in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 1 - CAPITAL Authorised Capital 5,000,000 5,000,000 2,500,000,000 (Previous year 2,500,000,000) Equity Shares of ` 2/- each Issued Capital 3,988,015 3,972,789 1,994,007,367 (Previous year 1,986,394,498) Equity Shares of ` 2/-each Subscribed, Called-up and Paid-up Capital 3,985,329 3,970,100 1,992,664,572 (Previous year 1,985,050,203) Equity Shares of `2/-each Less: Calls in arrears 4 4 Total 3,985,325 3,970,096

Refer Note 4.2 of Schedule 18

134 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) ( `in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 2 - RESERVES AND SURPLUS I. Statutory Reserve Opening balance 25,977,029 22,867,329 Additions during the year 3,856,953 3,109,700 29,833,982 25,977,029 II. Capital Reserves a) Revaluation Reserve Opening balance 50,091 50,091 Additions during the year - - 50,091 50,091 b) Others Opening balance 3,687,716 3,342,916 Additions during the year* 1,358,289 344,800 5,046,005 3,687,716 Subtotal 5,096,096 3,737,807 III. Share premium (Refer Note 4.2 of Schedule 18) Opening balance 51,308,871 50,780,933 Additions during the year 313,051 527,938 51,621,922 51,308,871 IV. Revenue and Other Reserves a) Revenue Reserve Opening Balance 18,695,880 17,256,580 Additions during the year 1,474,611 1,439,300 Deductions during the year - - 20,170,491 18,695,880 b) Investment Fluctuation Reserve (Refer Note 1.2.2 (d) of Schedule 18) Opening Balance 1,897,200 1,897,200 1,897,200 1,897,200 c) Special Reserve (As per section 36(1)(viii) of Income Tax Act) Opening balance 5,079,900 4,239,900 Additions during the year 960,000 840,000 6,039,900 5,079,900 V. Foreign Currency Translation Reserve Opening Balance 19,791 (2,751) Additions/ (deductions) during the year [Refer Schedule 17 (4.5)] 43,697 22,542 63,488 19,791

135 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) (`in Thousands) As at March 31, 2020 As at March 31, 2019 VI. Contingency Reserve Opening Balance 301,003 301,003 301,003 301,003

VII. Balance in Profit and Loss Account 26,166,675 21,742,841 Total 141,190,757 128,760,322

* - Includes Profit appropriated to Capital Reserve (net of applicable taxes and transfer to statutory reserve) on : a) Gain on sale of Held to Maturity Investments ` 1,336,850 Thousands (Previous year ` 260,221 Thousands) b) Profit on sale of Premises` 21,439 Thousands (Previous year ` 84,579 Thousands) SCHEDULE 3 - DEPOSITS A. I. Demand Deposits i. From Banks 2,201,459 4,800,620 ii. From Others 80,196,806 82,727,446 82,398,265 87,528,066 II. Savings Bank Deposits 385,344,370 349,785,547 III. Term Deposits i. From Banks 31,507,478 19,060,109 ii. From Others 1,023,650,736 893,169,722 1,055,158,214 912,229,831 Total 1,522,900,849 1,349,543,444

B. I. Deposits of branches in India 1,522,024,966 1,348,768,908 II. Deposits of branches outside India 875,883 774,536 Total 1,522,900,849 1,349,543,444 SCHEDULE 4 - BORROWINGS I. Borrowings in India i. Reserve Bank of India 19,880,000 5,000,000 ii. Other Banks 1,162,000 5,100,000 iii. Other institutions and agencies 56,947,272 44,182,225 Total 77,989,272 54,282,225 II. Borrowings outside India 25,734,991 23,531,010 Total 103,724,263 77,813,235 Secured borrowings included in I and II above 77,919,272 49,182,371

SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. Bills Payable 1,803,851 4,067,915 II. Inter - office adjustments (Net) - 5,405 III. Interest accrued 3,041,262 3,140,323 IV. Others (including provisions)* 29,734,162 26,099,207 Total 34,579,275 33,312,850 *Includes (a) General provision for standard assets (Refer Note 1.4.9 of Schedule 18) 6,261,103 5,270,303 (b) Deferred Tax Liability (Net) 111,457 997,957

136 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) (`in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. Cash in hand (including foreign currency notes) 13,736,894 7,002,297 II. Balance with Reserve Bank of India i. in Current Accounts 48,012,191 57,189,385 ii. in Other Accounts - - Total 61,749,085 64,191,682

SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India i. Balances with banks a. in Current Accounts 8,155,949 1,875,523 b. in Other Deposit Accounts 650,000 - ii. Money at call and short notice a. With Banks 2,750,000 - b. With other institutions 38,000,000 21,400,558 Total 49,555,949 23,276,081 II. Outside India i. in Current Accounts 5,704,165 3,922,812 ii. in Other Deposit Accounts 7,374,644 8,240,113 iii. Money at call and short notice 1,361,970 1,037,325 Total 14,440,779 13,200,250 Grand Total (I and II) 63,996,728 36,476,331

137 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) (`in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 8 - INVESTMENTS I. Investments in India in : i. Government Securities ## 317,607,101 273,508,149 ii. Other approved Securities - - iii. Shares 4,359,624 2,401,659 iv. Debentures and Bonds 14,573,447 11,903,518 v. Subsidiaries/ Joint Ventures 4,622,000 4,030,000 vi. Others @ 17,003,679 26,397,781 Total 358,165,851 318,241,107 II. Investments outside India i. Government Securities (including Local authorities) 756,555 - ii. Subsidiaries / Joint Ventures abroad - - iii. Other investments (Shares) 4,383 3,620 Total 760,938 3,620 Grand Total (I and II) 358,926,789 318,244,727 Gross Investments In India 362,598,461 322,239,127 Outside India 760,938 3,753 Total 363,359,399 322,242,880 Depreciation/ Provision for Investments In India 4,432,610 3,998,020 Outside India - 133 Total 4,432,610 3,998,153 Net Investments In India 358,165,851 318,241,107 Outside India 760,938 3,620 Total 358,926,789 318,244,727

## Securities costing ` 70,234,352 Thousands (Previous Year ` 48,222,203 Thousands) pledged for availment of fund transfer facility, clearing facility and margin requirements. @ Comprises of:

(`in Thousands)

Particulars As at March 31, 2020 As at March 31, 2019 Pass through certificates (PTCs) 3,179,372 4,979,229 Certificate of Deposits 8,426,645 16,768,658 Commercial Paper 1,952,494 480,833 Venture Capital Funds (VCFs) 963,367 654,661 Security Receipts 2,381,801 3,514,400 Mutual Fund 100,000 - Others - - Total 17,003,679 26,397,781

138 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) (`in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 9 - ADVANCES (NET OF PROVISIONS) A. i. Bills purchased and discounted 50,037,816 49,536,772 ii. Cash credits, overdrafts and loans repayable on demand 554,677,024 514,483,409 iii. Term loans 617,964,308 538,209,356 Total 1,222,679,148 1,102,229,537

B. i. Secured by tangible assets* 1,020,724,426 919,948,575 ii. Covered by Bank/Government guarantees # 23,853,476 19,555,065 iii. Unsecured 178,101,246 162,725,897 Total 1,222,679,148 1,102,229,537

C.I.Advances in India i. Priority sectors 296,524,927 300,456,563 ii. Public sector 1,307,504 2,731,508 iii. Banks 3,500,000 334,722 iv. Others 897,803,817 776,145,550 Total 1,199,136,248 1,079,668,343

C.II.Advances outside India (Refer note 3.11 of Schedule 18) i. Due from Banks 808,103 - ii. Due from Others a) Bills purchased and discounted - 899,921 b) Syndicated Loans 9,326,488 11,536,661 c) Others 13,408,309 10,124,612 Total 23,542,900 22,561,194 Grand Total (C I and C II) 1,222,679,148 1,102,229,537

* Includes Advances against book debts # Includes Advances against Letter of Credit issued by banks

139 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) (`in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 10 - FIXED ASSETS I. OWNED ASSETS A.Premises # Gross Block At the beginning of the year 2,416,139 2,419,706 Additions during the year - - Deductions during the year 13,907 3,567 At the end of the year 2,402,232 2,416,139 Depreciation As at the beginning of the year 946,441 900,506 Charge for the Year 45,917 48,411 Deductions during the year 9,513 2,476 Depreciation to date 982,845 946,441 Net Block 1,419,387 1,469,698 B. Other fixed assets (including furniture and fixtures) Gross Block At the beginning of the year 11,564,553 10,751,804 Additions during the year 1,229,773 1,305,602 Deductions during the year 1,032,163 492,853 At the end of the year 11,762,163 11,564,553 Depreciation As at the beginning of the year 8,484,769 7,790,213 Charge for the year 1,148,657 1,155,342 Deductions during the year 1,005,917 460,786 Depreciation to date 8,627,509 8,484,769 Net Block 3,134,654 3,079,784 II. Capital Work in progress (Including Capital Advances) 245,812 170,929 Total (I & II) 4,799,853 4,720,411

# Includes buildings constructed on leasehold land at different places having original cost of ` 659,861 Thousands (Previous Year ` 659,861 Thousands) and Written down value of ` 464,092 Thousands (Previous Year ` 475,256 Thousands) with remaining lease period varying from 57 - 69 years.

140 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE BALANCE SHEET (CONTD...) (`in Thousands) As at March 31, 2020 As at March 31, 2019 SCHEDULE 11 - OTHER ASSETS I. Inter - office adjustments (net) - - II. Interest accrued 10,227,723 8,671,829 III. Tax paid in advance/Tax Deducted at source (Net of provision) 10,630,146 9,650,669 IV. Stationery and Stamps 6,731 3,479 V. Non-banking assets acquired in satisfaction of claims* 24,376 26,587 VI. Others # 73,339,890 49,184,695 Total 94,228,866 67,537,259 * - Includes certain Non-Banking assets acquired in satisfaction of claims which are in the process of being transferred in the Bank's name. # Includes Priority sector shortfall deposits 60,167,801 39,754,250 SCHEDULE 12 - CONTINGENT LIABILITIES I. Claims against the Bank not acknowledged as debts 14,556,410 10,431,829 II. Liability on account of outstanding forward exchange contracts** 247,702,742 216,818,222 III. Guarantees given on behalf of constituents - in India 65,911,076 49,831,684 IV. Acceptances, endorsements and other obligations 14,105,927 14,698,846 V. Other items for which the Bank is contingently liable@ 2,324,549 1,666,179 Total 344,600,704 293,446,760

(Refer Note 4.7 of Schedule 18)

** - Including Derivatives

@ - includes ` 1,773,742 Thousands (Previous Year : ` 1,145,572 Thousands) being amount transferred to DEA Fund Cell, RBI and outstanding, as per RBI circular DBOD.No.DEAF Cell.BC.114/30.01.002/2013-14 (Refer Note 3.16 of Schedule 18).

141 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT (`in Thousands) Year ended March 31, 2020 Year ended March 31, 2019 SCHEDULE 13 - INTEREST EARNED I. Interest/discount on advances/bills 106,708,679 90,896,169 II. Income on investments 21,840,716 20,374,502 III. Interest on balances with Reserve Bank of India and other inter-bank funds 1,399,639 734,688 IV. Others* 2,158,500 2,184,886 Total 132,107,534 114,190,245

* - Includes interest on Income tax refunds amounting to ` Nil (Previous year ` 341,251 Thousands) accounted based on Assessment orders received.

SCHEDULE 14 - OTHER INCOME I. Commission, exchange and brokerage 9,894,858 8,010,179 II. Profit on sale of investments (Net) 6,078,431 2,283,978 III. Profit on revaluation of investments (Net) - - IV. Profit / (Loss) on sale of land, buildings and other assets (Net) 53,538 181,892 V. Profit on foreign exchange transactions (Net) 2,384,773 2,356,789 VI. Income earned by way of dividends etc. from companies in India 305,747 - VII.Miscellaneous income** 596,728 677,402 Total 19,314,075 13,510,240

** - Includes Recoveries in assets written off ` 522,418 Thousands (Previous year ` 435,841 Thousands)

SCHEDULE 15 - INTEREST EXPENDED I. Interest on deposits 81,003,652 67,425,806 II. Interest on Reserve Bank of India/Inter bank borrowings 914,103 1,137,434 III. Others 3,700,739 3,863,556 Total 85,618,494 72,426,796

SCHEDULE 16 - OPERATING EXPENSES I. Payments to and provisions for employees 17,723,605 13,777,579 II. Rent, taxes and lighting 2,945,396 2,760,272 III. Printing and stationery 246,643 288,694 IV. Advertisement and publicity 113,763 151,644 V. Depreciation on Bank`s property 1,194,574 1,203,754 VI. Directors' fees, allowances and expenses 22,156 15,154 VII.Auditors' fees and expenses (including branch auditors' fees and expenses) 92,744 82,880 VIII.Law charges 122,333 93,334 IX. Postage, Telegrams, Telephones etc 747,670 655,589 X. Repairs and maintenance 716,190 653,371 XI. Insurance 1,420,978 1,194,064 XII.Other expenditure# 8,410,080 6,766,334 Total 33,756,132 27,642,669

# - Includes expenditure on Corporate Social Responsibility - ` 423,980 Thousands (Previous Year: `170,382 Thousands)

142 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020

1. Background 4. Significant accounting policies

The Federal Bank Limited (‘the Bank’) was incorporated in 1931 as 4.1 Revenue Recognition Travancore Federal Bank Limited to cater to the banking needs of • Interest income is recognised on an accrual basis except interest Travancore Province. It embarked on a phase of sustained growth income on non-performing assets, which is recognised upon under the leadership of Late K.P. Hormis. The Bank has a network receipt as specified in RBI guidelines. of 1299 branches / offices in India and provides retail and corporate banking, para banking activities such as debit card, third party product • Interest on income tax refund is recognised in the year of receipt distribution etc., treasury and foreign exchange business. The Bank is of Assessment Orders. governed by the Banking Regulation Act, 1949 and other applicable • The recoveries made from NPA accounts are appropriated Acts / Regulations. The Bank’s shares are listed on BSE Limited and first towards unrealized interest/income debited to borrowers National Stock Exchange of India Limited. The GDRs issued by the accounts, then expenditure/out of pocket expenses incurred and Bank in 2006 have been listed on London Stock Exchange. The Bank lastly towards principal dues. had set up an International Financial Service Centre (IFSC) Banking • Processing fees collected on loans disbursed, along with related unit (IBU) in Gujarat International Finance Tec-City (GIFT City) in line loan acquisition costs are recognised at inception/Renewal of with global financial centres of Singapore and Dubai. IBU at Gift city the loan. is equivalent to an Offshore Banking unit, for all regulatory purposes. • Income on discounted instruments is recognised over the tenure 2. Basis of preparation of the instrument on a straight line basis. The financial statements have been prepared in accordance with • Guarantee commission, commission on letter of credit and requirements prescribed under the Third Schedule (Form A and Form annual locker rent fees are recognised on a straight line basis B) of the Banking Regulation Act, 1949. The accounting and reporting over the period of contract. Other fees and commission income policies of the Bank used in the preparation of these financial are recognised when due, except in cases where the bank is statements conform to Generally Accepted Accounting Principles uncertain of ultimate collection. in India (“Indian GAAP”), the circulars and guidelines issued by the • Dividend on Equity Shares, Preference Shares and on Mutual Reserve Bank of India ('RBI') from time to time and the Accounting Funds is recognised as Income when the right to receive the Standards prescribed under Section 133 of the Companies Act, 2013 dividend is established. (“the Act”) and the relevant provisions of the Act, as applicable and • Loan Syndication fee is accounted for on completion of the current practices prevailing within the banking industry in India. The agreed service and when right to receive is established. Bank follows the historical cost convention and accrual method of accounting in the preparation of the financial statements, except in • In compromise settlement cases, sacrifice on settlement is the case of interest income on Non- Performing Assets (NPAs) where accounted upfront. it is recognised upon realisation as per RBI guidelines. The accounting • Unpaid funded interest on term loans are accounted on policies adopted in the preparation of financial statements are realisation as per the guidelines of RBI. consistent with those followed in the previous year. • The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other 3. Use of estimates income. The Bank also deals in bullion on a borrowing and The preparation of the financial statements in conformity with the lending basis and the interest paid/received is accounted on an generally accepted accounting principles requires the Management accrual basis. to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of 4.2 Advances contingent liabilities at the date of the financial statements. Actual Advances are classified into performing assets (Standard) and non- results could differ from those estimates. The Management believes performing assets ('NPAs') as per the RBI guidelines and are stated that the estimates used in the preparation of the financial statements net of bills rediscounted, inter-bank participation certificates issued are prudent and reasonable. Any revisions to the accounting estimates with risk sharing, specific provisions made towards NPAs, floating are recognised prospectively in the current and future periods. provisions and unrealized interest on NPAs. Interest on Non Performing advances is transferred to an unrealized interest account and not recognized in profit and loss account until received. Further,

143 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

NPAs are classified into sub-standard, doubtful and loss assets based in respect of the country where the net funded exposure is 1% or on the criteria stipulated by the RBI. The Bank has made provision more of the bank’s total funded assets. for Non-Performing Assets as stipulated under Reserve Bank of India 4.4 Investments (RBI) norms. The Bank also maintains provisions on loans under Scheme for Classification Sustainable Structuring of Stressed Assets (S4A) and Strategic Debt In accordance with the RBI guidelines, investments are categorized at Restructuring (SDR) scheme as per the RBI guidelines. the time of purchase as: Amounts recovered against debts written off are recognised in the • Held for Trading (HFT); profit and loss account and included under “Other Income”. • Available for Sale (AFS); and For restructured/rescheduled assets, provision is made in accordance • Held to Maturity (HTM) with the guidelines issued by the RBI, which requires the diminution in Investments which are primarily held for sale within 90 days from the fair value of the assets to be provided at the time of restructuring. the date of purchase are classified as “Held for Trading”. As per In respect of loans and advances accounts subjected to restructuring, RBI guidelines, HFT Securities which remain unsold for a period of the account is upgraded to standard only after the specified period 90 days are classified as AFS Securities on that date. Investments i.e. a period of one year after the date when first payment of interest which the bank intends to hold till maturity are classified as “Held or of principal, whichever is later, falls due, subject to satisfactory to Maturity”. performance of the account during the period. Investments which are not classified in either of the above two Provision for Unhedged Foreign Currency Exposure (UFCE) of categories are classified as “Available for Sale”. borrower entities is made in accordance with the guidelines issued by RBI, which requires the Bank to ascertain the amount of UFCE, Under each of these categories, investments are further classified estimate the extent of likely loss and estimate the riskiness of under six groups (hereinafter called groups) - Government Securities, unhedged position of those entities. The Provision is classified under Other Approved Securities, Shares, Debentures and Bonds, Schedule 5 – Other Liabilities in the Balance Sheet. Investments in Subsidiaries/ Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet. The Bank maintains general provision for standard assets including credit exposures computed as per the current marked to market Transfer of securities between Categories values of interest rate and foreign exchange derivative contracts, in Transfer of securities between categories is done at the lower of accordance with the guidelines and at levels stipulated by RBI from the acquisition cost / book value / market value on the date of the time to time. transfer and the depreciation, if any, on such transfer is fully provided The bank transfers advances through inter-bank participation with for, as per RBI guidelines. and without risk. In accordance with the RBI guidelines, in the case Acquisition Cost of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where the Bank In determining the acquisition cost of the Investment: is participating; the aggregate amount of participation is classified • Transaction costs including brokerage and commission pertain- under advances. In the case of participation without risk, the ing to acquisition of Investments are charged to the Profit and aggregate amount of participation issued by the Bank is classified Loss Account. under borrowings and where the Bank is participating, the aggregate • Broken period interest is charged to the Profit and Loss Account. amount of participation is shown as due from banks under advances. • Cost of investments is computed based on the weighted average 4.3 Country risk cost method. In addition to the provisions required to be held according to the Valuation asset classification status, provisions are held for individual country The valuation of investments is made in accordance with the RBI exposure (other than for home country). The countries are categorised Guidelines as follows: into seven risk categories namely insignificant, low, moderate, high, a) Held for Trading /Available for Sale – Investments classified very high, restricted and off-credit as per Export Credit Guarantee under the AFS and HFT categories are marked-to-market. The Corporation of India Limited (ECGC) guidelines and provision is made market/fair value of quoted investments included in the ‘AFS’

144 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

and ‘HFT’ categories is the Market Price of the Scrip as available calendar quarters from the date of conversion of debt into from the trades/ quotes on the stock exchanges or prices equity in accordance with the RBI guidelines. declared by Primary Dealers Association of India (‘PDAI’) jointly • Units of Venture Capital Funds (VCF) held under AFS category with Fixed Income Money Market and Derivative Associations of where current quotations are not available are marked to India (‘FIMMDA’) / Financial Benchmarks India Pvt Ltd. (‘FBIL’), market based on the Net Asset Value (NAV) shown by VCF as periodically. Net depreciation, if any, within each category of per the latest audited financials of the fund. In case the audited each investment classification is recognised in Profit and Loss financials are not available for a period beyond 18 months, the Account. The net appreciation, if any, under each category of investments are valued at Re.1/- per VCF. Investment in unquoted each Investment is ignored. Except in cases where provision for VCF after August 23, 2006 are categorized under HTM category diminution other than temporary is created, the Book value of for the initial period of three years and valued at cost as per RBI individual securities is not changed consequent to the periodic guidelines; valuation of Investments. • In case of investments in security receipts on or after April 1, b) Held to Maturity– These are carried at their acquisition cost. 2017 which are backed by more than 50 percent of the stressed Any premium on acquisition is amortized over the remaining assets sold by the Bank, provision for depreciation in value is maturity period of the security on a straight line basis. Any made at the higher of - provisioning rate required in terms of diminution, other than temporary, in the value of such securities net asset value declared by the Reconstruction Company (‘RC’)/ is provided for. Securitisation Company (‘SC’) or the provisioning rate as per the extant asset classification and provisioning norms as applicable c) Treasury Bills, Commercial paper and Certificate of Deposits to the underlying loans, assuming that the loan notionally con- being discounted instruments, are valued at carrying cost. tinued in the books of the bank. All other investments in security d) Units of Mutual Funds are valued at the latest repurchase price/ receipts are valued as per the NAV obtained from the issuing RC/ net asset value declared by Mutual Fund. SCs. e) Market value of investments where current quotations are not f) Investments in subsidiaries/associates as per RBI guidelines are available, is determined as per the norms prescribed by the RBI categorized as HTM and assessed for impairment to determine as under: permanent diminution, if any. • In case of unquoted bonds, debentures and preference shares g) The Bank follows settlement date method of accounting for where interest/dividend is received regularly (i.e. not overdue purchase and sale of investments. beyond 90 days), the market price is derived based on the Yield h) Non Performing Investments are identified and valued based on to Maturity (YTM) for Government Securities as published by RBI Guidelines. FIMMDA/ PDAI/ FBIL and suitably marked up for credit risk ap- plicable to the credit rating of the instrument. The matrix for Disposal of Investments credit risk mark-up for each categories and credit ratings along a) Held for Trading and Available for Sale – Profit or loss on sale / with residual maturity issued by FIMMDA/ FBIL are adopted for redemption is included in the Profit and Loss account. this purpose; b) Held to Maturity – Profit on sale /redemption of investments is • In case of bonds and debentures (including Pass Through Cer- included in the Profit and Loss Account and is appropriated to tificates or PTCs) where interest is not received regularly (i.e. Capital Reserve after adjustments for tax and transfer to Statu- overdue beyond 90 days), the valuation is in accordance with tory Reserve. Loss on sale / redemption is charged to the Profit prudential norms for provisioning as prescribed by RBI; and Loss account. • Equity shares, for which current quotations are not available Repo and Reverse Repo transactions or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation Repo and reverse repo transactions in government securities and reserves, if any) which is ascertained from the company's latest corporate debt securities including those conducted under the Balance Sheet. In case the latest Balance Sheet available is of a Liquidity Adjustment Facility (‘LAF’) and Marginal Standby Facility date earlier than one year from the date of valuation, the shares (‘MSF’) with RBI are accounted as collateralised borrowing and are valued at Re. 1/- per company; lending respectively. Borrowing cost on repo transactions is accounted • Depreciation on equity shares acquired and held by the Bank as interest expense and revenue on reverse repo transactions is under SDR and S4A scheme is provided over a period of four accounted as interest income.

145 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

Short Sales Balance Sheet date.

In accordance with the RBI guidelines, the Bank undertakes short sale 4.6 Derivative transactions transactions in Central Government dated securities. The Short Sales The Bank recognizes all derivative contracts at fair value, on the positions are reflected in ‘Securities Short Sold (‘SSS’) A/C, specifically date on which the derivative contracts are entered into and are re- created for this purpose. The short position is categorised under HFT measured at fair value as at the Balance sheet or reporting dates. category and netted off from investments in the Balance Sheet. Derivatives are classified as assets when the fair value is positive These positions are marked-to-market and resultant gains/losses (Positive marked-to-market) or as liabilities when the fair value is are accounted for as per the relevant RBI guidelines for valuation of negative (negative marked-to-market). Changes in the fair value of Investments discussed earlier. derivatives other than those designated as hedges are recognised in 4.5 Transactions involving foreign exchange the Profit and Loss Account.

Foreign currency income and expenditure items of domestic 4.7 Proposed Dividend operations are translated at the exchange rates prevailing on the date In terms of Accounting Standard (AS) 4 "Contingencies and Events of the transaction. Income and expenditure items of non-integral occurring after the Balance sheet date" as notified by the Ministry of foreign operations (foreign branches) are translated at quarterly Corporate affairs through amendments to Companies (Accounting average closing rates. Standards) Amendment Rules, 2016 dated March 30, 2016, Foreign currency monetary items of domestic operation are translated Proposed Dividend or Dividend declared after balance sheet date are at the closing exchange rates notified by Foreign Exchange Dealers not shown as liability in current year balance sheet. This is disclosed Association of India (FEDAI) as at the Balance sheet date and the in the notes to accounts. resulting net valuation profit or loss is recognized in the profit and loss account. 4.8 Fixed assets and depreciation Both Monetary and Non- Monetary foreign currency Assets and Fixed assets are carried at cost of acquisition less accumulated liabilities of Non- Integral Foreign Operations are translated at depreciation and impairment, if any. Cost includes cost of purchase closing exchange rates notified by FEDAI at the balance sheet date and all expenditure like freight, duties, taxes and incidental expenses and the resulting profit/loss arising from exchange differences are related to the acquisition and installation of the asset. Taxes like GST accumulated in Foreign currency translation Reserve until remittance paid on Fixed assets are availed as ITC as per GST rules. or the disposal of the net investment in the non-integral foreign Capital work-in-progress includes cost of fixed assets that are not operations in accordance with AS-11. Any realised gains or losses on ready for their intended use and also includes advances paid to such disposal are recognised in the Profit and Loss Account. acquire fixed assets. Foreign exchange spot and forward Contracts (Other than the Depreciation on fixed assets, including amortisation of software, is forwards / swaps marked under Funding category) outstanding as at charged over the estimated useful life of fixed assets on straight- the Balance Sheet date are revalued at the closing Spot and Forward line basis at the rates and manner prescribed in Schedule II of the Rates respectively as notified by FEDAI and at interpolated rates for Companies Act, 2013, except as mentioned below: contracts of interim maturities. For valuation of contracts having • Premises are depreciated under the written down value method, longer maturities i.e. greater than one year, the forward points (for using the same useful life as in Schedule II of the Companies Act, rates/tenures not published by FEDAI) are obtained from Reuters for 2013. Improvements to leased Premises are depreciated over 5 valuation of the FX Deals. As directed by FEDAI to consider profit or years based on technical evaluation. loss on present value basis, the forward profit or loss on the deals • Depreciation on premises revalued has been charged on their are discounted till the valuation date using the discounting yields. written-down value including the addition made on revaluation. The resulting profit or loss on valuation is recognised in the Profit and Loss Account. • Assets individually costing ` 2,000/- or less are fully depreciated in the year of purchase. Foreign exchange swaps taken for funding purposes is amortised and recognised along interest lines in the Profit and Loss Account. Depreciation on assets sold during the year is recognised on a pro-rata basis till the date of sale. Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are Profit on sale of premises is appropriated to Capital Reserve account reported at closing rates of exchange notified by FEDAI as at the (Net of applicable taxes and transfer to statutory reserves) in

146 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) accordance with RBI instructions. The employees are also eligible for LTC as per the rules. The estimated cost of unused entitlement as on the Balance Sheet date based on 4.9 Impairment of Assets actuarial valuation is provided for. The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is e) New Pension Scheme (‘NPS’) provided in the Profit and Loss account to the extent the carrying Employees who joined the services of the Bank on or after April 01, amount of assets exceeds their estimated recoverable amount. 2010 are covered under New Pension Scheme. Bank contributes certain percentage of the sum of basic salary and dearness allowance 4.10 Non-Banking Assets of employees to the aforesaid scheme, a defined contribution plan, Non-Banking assets acquired in settlement of debts / dues are which is managed and administered by pension fund management accounted at the lower of their cost of acquisition or net realisable companies. NPS contributions are recognised in the Profit and Loss value. Account in the period in which they accrue.

4.11 Retirement and other employee benefits f) Other employee Benefits a) Provident Fund The undiscounted amount of Short-term employee benefits expected to be paid in exchange for the services rendered by employees is The contribution made by the bank to The Federal Bank Employees recognised during the period when the employees render the service. Provident Fund, administered by the trustees is charged to the Profit These benefits include performance incentives. and Loss account. 4.12 Segment information b) Pension Fund The disclosure relating to segment information is in accordance with The contribution towards The Federal Bank Employees’ Pension Fund, the guidelines issued by RBI. managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in 4.13 Lease transactions the Profit and Loss accounts. Operating Lease c) Gratuity Leases where the lessor effectively retains substantially all the risks The Bank makes annual contribution to The Federal Bank Employees’ and benefits of ownership over the lease term are classified as Gratuity Trust Fund administered and managed by the Trustees. The operating lease. Lease payments for assets taken on operating lease cost of providing such benefits is determined using the Projected are recognised as an expense in the Profit and Loss Account as per Unit Credit method, with actuarial valuations being carried out at the lease terms. each balance sheet date. Actuarial gains and losses are recognised in the Profit and Loss Account in the period in which they occur. 4.14 Earnings per Share The retirement benefit obligation recognised in the Balance Sheet The Bank reports basic and diluted earnings per share in accordance represents the present value of the defined benefit obligation as with AS 20, Earnings per Share, as prescribed under Section 133 of adjusted for unrecognised past service cost, as reduced by the fair the Companies Act, 2013. Basic earnings per share is computed by value of scheme assets. Any asset resulting from this calculation is dividing the net profit after tax by the weighted average number of limited to past service cost, plus the present value of available refunds equity shares outstanding for the year. and reductions in future contributions to the schemes. Diluted earnings per share reflect the potential dilution that could d) Compensation for absence on Privilege / Sick / Casual occur if securities or other contracts to issue equity shares were Leave and Leave Travel Concession (LTC) exercised or converted during the year. Diluted earnings per share is computed using the weighted average number of equity shares and The employees of the Bank are entitled to compensated absence on dilutive potential equity shares outstanding at the year end except account of privilege / sick / casual leave as per the leave rules. The where the results are anti-dilutive. Bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the 4.15 Taxation balance sheet date based on actuarial valuation and such costs are Income tax expense is the aggregate amount of current tax and recognised in the Profit and Loss account. deferred tax charge.

147 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

Current tax is the amount of tax payable on the taxable income for one or more uncertain future events not within the control of the year as determined in accordance with the applicable tax rates the Bank; or and the provisions of the Income Tax Act, 1961 and other applicable • a present obligation arising from a past event which is not rec- tax laws. ognised as it is not probable that an outflow of resources will Deferred tax is recognised on timing differences, being the differences be required to settle the obligation or a reliable estimate of the between the taxable income and the accounting income that amount of the obligation cannot be made. originate in one period and are capable of reversal in one or more When there is a possible obligation or a present obligation in subsequent periods. Deferred tax is measured using the tax rates and respect of which the likelihood of outflow of resources is remote, no the tax laws enacted or substantively enacted as at the reporting provision or disclosure is made. date. Deferred tax liabilities are recognised for all timing differences. Contingent assets are not recognised in the financial statements. Deferred tax assets are recognised for timing differences of items However, contingent assets are assessed continually and if it is other than unabsorbed depreciation and carry forward losses only virtually certain that an inflow of economic benefits will arise, the to the extent that reasonable certainty exists that sufficient future asset and related income are recognised in the period in which the taxable income will be available against which these can be realised. change occurs. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are 4.17 Debit card reward points recognised only if there is virtual certainty supported by convincing The Bank runs a loyalty program which seeks to recognise and reward evidence that there will be sufficient future taxable income available customers based on their relationship with the Bank. Under the to realise the assets. Deferred tax assets and liabilities are offset if program, eligible customers are granted loyalty points redeemable in such items relate to taxes on income levied by the same governing future, subject to certain conditions. The Bank estimates the probable tax laws and the Bank has a legally enforceable right for such set off. redemption of such loyalty/reward points using an actuarial method Deferred tax assets are reviewed at each balance sheet date for their on a quarterly basis by employing independent actuary, which realisability. includes assumptions such as mortality, redemption and spends. Current and deferred taxes relating to items directly recognised in Provision for said reward points is then made based on the actuarial reserves are adjusted in reserves and not in Profit and Loss Account. valuation report as furnished by the said independent Actuary.

Minimum Alternate Tax (MAT) paid in accordance with the tax laws, 4.18 Employee Stock Option Scheme which gives future economic benefits in the form of adjustment The Bank has formulated Employee Stock Option Scheme (ESOS) to future income tax liability, is considered as an asset if there 2010 & Employee Stock Option Scheme (ESOS) 2017 and is in is convincing evidence that the Bank will pay normal income tax. accordance with Securities and Exchange Board of India (Employee Accordingly, MAT is recognised as an asset in the Balance Sheet Stock Option Scheme) Guidelines, 1999. The Scheme provides for when it is highly probable that future economic benefit associated grant of options to Employees of the Bank to acquire Equity Shares with it will flow to the Bank. of the Bank that vest in a graded manner and that are to be exercised 4.16 Provisions, contingent liabilities and contingent within a specified period. In accordance with the SEBI Guidelines assets and the guidance note on “Accounting for Employee Share based A provision is recognised when the Bank has a present obligation as payments” issued by the ICAI, the bank follows ‘Intrinsic value a result of past events and it is probable that an outflow of resources method’ for accounting of ESOS based on which, the excess, if any, will be required to settle the obligation, in respect of which a reliable of the market price of the share preceding the date of grant of the estimate can be made. Provisions (excluding retirement benefits) are option under ESOS over the exercise price of the option is amortised not discounted to its present value and are determined based on on a straight line basis over the vesting period. best estimate required to settle the obligation at the Balance Sheet The fair market price is the latest available closing price, prior to the date. These are reviewed at each Balance Sheet date and adjusted to date of grant, on the stock exchange on which the shares of the Bank reflect the current best estimates. are listed. If the shares are listed on more than one stock exchange, A disclosure of contingent liability is made when there is: then the stock exchange where there is highest trading volume on the said date is considered. • a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of

148 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

4.19 Share issue expenses Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

4.20 Corporate Social Responsibility Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013 are recognised in the Profit and Loss Account.

4.21 Input Credit under GST Goods & Service tax input credit is accounted for in the books within the time limit prescribed under CGST Rules, 2017, as amended.

4.22 Priority Sector Lending Certificates (PSLC) The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015- 16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ‘Expense’ and the fee received from the sale of PSLCs is treated as ‘Other Income’.

4.23 Cash and Cash Equivalents Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at call and short notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).

149 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020

1. Disclosures requirement as per RBI’s Master Circular on Disclosure in Financial Statements Amounts in notes forming part of the financial statements for the year ended March 31, 2020 are denominated in Rupees Crore to conform to extant RBI guidelines except where stated otherwise.

1.1. Capital Adequacy Ratio The Bank computes Capital Adequacy Ratio as per Basel III Capital Regulations issued by RBI, which became applicable to the Bank with effect from April 1, 2013. Under Basel III Capital Regulations, on an on-going basis, the Bank has to maintain a Minimum Total Capital (MTC) of 10.875 % (Previous Year 10.875 %) including Capital Conversion Buffer (CCB) at 1.875% (Previous Year 1.875%), of the total risk weighted assets (RWA). Out of the MTC, at least 7.375% (Previous Year 7.375%), shall be from Common Equity Tier 1 (CET1) capital and at least 8.875% (Previous Year 8.875%) from Tier 1 capital, including 1.875% (Previous Year 1.875%) towards CCB. The capital adequacy ratio of the Bank is set out below: (` in Crore) Particulars As at March 31, 2020 As at March 31, 2019 Common Equity Tier I* 14,056.92 12,545.71 Tier 1 Capital 14,056.92 12,545.71 Tier 2 Capital 1,118.08 714.47 Total Capital 15,175.00 13,260.18 Total risk weighted assets 105,785.95 93,764.32 Capital Ratios Common Equity Tier 1 13.29% 13.38% Tier 1 Capital 13.29% 13.38% Tier 2 Capital 1.06% 0.76% Total Capital to Risk weighted Asset Ratio (CRAR) 14.35% 14.14% Percentage of the shareholding of the Government of India in public sector banks NA NA Amount of Equity Capital Raised Net of Share Issue Expenses - - Amount of Additional Tier I Capital raised of which: - - a) Perpetual Non- Cumulative Preference Shares(PNCPS) - - b) Perpetual Debt Instruments (PDI) - - Amount of Tier II Capital raised of which: - - a) Debt Capital instruments 300.00 - b) Preference Share Capital Instruments: - - [Perpetual Cumulative Preference Shares (PCPS) / Redeemable Non-Cumulative Preference Shares (RNCPS) / Redeemable Cumulative Preference Shares (RCPS)] - -

*Adjusted for proposed dividend of ` Nil per share (Previous year: `1.40 per share) and applicable taxes. (Refer Note 4.2 E also) During the year ended March 31, 2020, the bank had raised ` 300.00 Crore (Previous year: ` Nil) Tier II capital by way of issuance of Basel III compliant Tier II Bonds, the details of which are set out below. Amount Instrument Capital Date of Maturity Period Coupon (` in Crore)

Subordinated Debt Tier II June 20, 2029 120 Months 9.75% 300.00

In accordance with RBI Guidelines, banks are required to make Pillar 3 disclosures under Basel III capital regulations. The Bank has made these disclosures which are available on its website at the following link: http://www.federalbank.co.in/regulatory-disclosures. The Pillar 3 disclosures have not been subjected to audit.

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

1.2. Investments

1.2.1. Details of Investments: (` in Crore) Particulars March 31, 2020 March 31, 2019 (1) Value of Investments (i) Gross Value of Investments (a) In India 36,259.85 32,223.91 (b) Outside India 76.09 0.38 (ii) Provision for Depreciation (a) In India 347.07 308.98 (b) Outside India - 0.02 (iii) Provision for Non-performing investments (a) In India 96.19 90.82 (b) Outside India - - (iv) Net value of Investments (a) In India 35,816.59 31,824.11 (b) Outside India 76.09 0.36 (2) Movement of provision held towards depreciation on Investments (i) Opening Balance 308.98 206.05 (ii) Add: Provisions made during the year 59.61 125.12 (iii) Less: Write off / Write back of excess provision during the year 21.52 22.19 (iv) Closing Balance 347.07 308.98 (3) Movement of provision for Non-performing investments (NPIs) (i) Opening Balance 90.82 88.94 (ii) Add: Provisions made during the year 24.15 13.48 (iii) Less: Write off / Write back of excess provision during the year 18.78 11.60 (iv) Closing Balance 96.19 90.82 Movement in provisions held towards depreciation on investments have been reckoned on a yearly basis

1.2.2. Additional Details on Investments: a) Investments under HTM (excluding specified investments as per RBI norms) account for 18.97% (Previous year 17.88%) of demand and time liabilities as at the end of March 31, 2020 as against permitted ceiling of 19.50% (Previous Year: 19.50%) stipulated by RBI. b) In respect of securities held under HTM category premium of ` 74.01 Crore (Previous year: ` 52.89 Crore) has been amortised during the year and debited under interest received on Government securities. c) Profit on sale of securities from HTM category amounting to ` 235.44 Crore (Previous year: `53.20 Crore) has been taken to Profit and Loss Account. This includes Profit on redemption on maturity of investments amounting to` 17.71 Crores. During the year, the Bank had appropriated ` 133.69 Crore (Previous year ` 26.02 Crore), [net of taxes and transfer to statutory reserve] to the Capital Reserve, being the gain on sale of HTM Investments in accordance with RBI guidelines. (Refer Note 1.2.5 also) d) As per RBI circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 Investment fluctuation reserve (IFR) is to be created with an amount not less than lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. As on March 31, 2020, the bank is maintaining an IFR of `189.72 Crore as against the minimum requirement of ` 159.37 Crore and considered it as part of Tier II capital for capital adequacy purposes. (Previous Year: `189.72 Crore)

151 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

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1.2.3. Repo Transactions Details of securities sold/purchased (in face value terms) during the years ended March 31, 2020 under repos/reverse repos: (` in Crore) Outstanding during the year Particulars As at March 31, 2020 Minimum Maximum Daily Average A) Securities sold under RBI Repos i) Government Securities - 2,438.00 192.56 1,988.00 ii) Corporate Debt Securities - - - - Securities purchased under RBI Reverse Repos i) Government Securities - 5,900.00 1,169.62 3,400.00 ii) Corporate Debt Securities - - - - B)Securities sold under Market Repos i) Government Securities - 1,590.25 685.99 1,184.73 ii) Corporate Debt Securities - - - - Securities purchased under Reverse Market Repos i) Government Securities - 1,778.91 189.07 - ii) Corporate Debt Securities - - - -

Details of securities sold/purchased (in face value terms) during the year ended March 31, 2019 under repos/reverse repos: (` in Crore) Outstanding during the year Particulars As at March 31, 2019 Minimum Maximum Daily Average A) Securities sold under RBI Repos i) Government Securities - 1,687.00 134.39 500.00 ii) Corporate Debt Securities - - - - Securities purchased under RBI Reverse Repos i) Government Securities - 2,125.00 238.97 2,125.00 ii) Corporate Debt Securities - - - - B) Securities sold under Market Repos i) Government Securities 9.63 1,638.83 629.95 113.34 ii) Corporate Debt Securities - - - - Securities purchased under Reverse Market Repos i) Government Securities - 1,203.06 225.17 15.06 ii) Corporate Debt Securities - - - -

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

1.2.4. Details of Non-SLR investment portfolio: a) Issuer composition as at March 31, 2020 of Non-SLR investments (` in Crore) Extent of Extent of ‘below Extent of ‘ Extent of Sl. Issuer Amount private investment unrated’ ‘unlisted’ No. placement grade’ securities securities ** Securities*** (1) (2) (3) (4) (5) (6) (7) 1 Public Sector Undertakings 16.27 6.50 - - - 2 Financial Institutions 435.07 405.35 - - - 3 Banks 1,347.61 1,346.21 10.00 - - 4 Private Corporates 1,478.78 1,478.78 25.00 - 372.40 5 Subsidiaries / Joint ventures 467.20 467.20 - - 5.00 6 Others* 830.30 754.40 546.49 10.00 5.00 7 Less: Provision held towards depreciation on investment 347.07 XXX XXX XXX XXX 8 Less: Provision held towards non performing investments 96.19 XXX XXX XXX XXX Total 4,131.97 4,458.44 581.49 10.00 382.40

Amounts reported under column (4), (5), (6) and (7) above are not mutually exclusive

* Includes Investments in Non-SLR government securities amounting to ` 75.91 Crore. ** Excludes investments in equity shares, commercial papers, Certificates of Deposit, Securities directly issued by the Central and State Governments, which are not reckoned for SLR purposes, security acquired by way of conversion of debt and units issued by venture capital in line with RBI guidelines. *** Excludes investments in equity shares, units issued by venture capital funds, pass through certificates, security receipts, security acquired by way of conversion of debt and certificate of deposits in line with RBI guidelines. Issuer composition as at March 31, 2019 of Non-SLR investments

(` in Crore) Extent of Extent of ‘below Extent of ‘ Extent of Sl. Issuer Amount private investment unrated’ ‘unlisted’ No. placement grade’ securities securities ** Securities*** (1) (2) (3) (4) (5) (6) (7) 1 Public Sector Undertakings 16.27 6.50 - - - 2 Financial Institutions 768.88 729.13 - - - 3 Banks 1,999.06 1,997.36 - - - 4 Private Corporates 899.37 893.68 49.04 - 121.73 5 Subsidiaries / Joint ventures 403.00 403.00 - - - 6 Others* 786.88 783.50 616.74 - 5.00 7 Less: Provision held towards depreciation on investment 308.98 XXX XXX XXX XXX 8 Less: Provision held towards non performing investments 90.82 XXX XXX XXX XXX Total 4,473.66 4,813.17 665.78 0.00 126.73

Amounts reported under column (4), (5), (6) and (7) above are not mutually exclusive * Includes Investments in Non-SLR government securities amounting to ` 3.40 Crore. ** Excludes investments in equity shares, commercial papers, Certificates of Deposit, Securities directly issued by the Central and State Governments, which are not reckoned for SLR purposes, security acquired by way of conversion of debt and units issued by venture capital in line with RBI circular DBR No BP.BC.6/21.04.141/2015-16. *** Excludes investments in equity shares, units issued by venture capital funds, pass through certificates, security receipts, security acquired by way of conver- sion of debt and certificate of deposits in line with RBI circular DBR No BP.BC.6/21.04.141/2015-16.

153 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

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b) Non-SLR investments category-wise (Net of Provisions): (` in Crore) Particulars March 31, 2020 March 31, 2019 Shares 435.96 240.17 Debentures and Bonds* 1,457.35 1,190.35 Subsidiaries/Joint Ventures 462.20 403.00 Others 1,700.37 2,639.78 Investment outside India 76.09 0.36 Total 4,131.97 4,473.66

* - Includes Investments in Non-SLR government securities amounting to ` 0.25 Crore (Previous year: ` 3.40 Crore).

c) Non-performing Non-SLR investments is set out below: (` in Crore) Particulars March 31, 2020 March 31, 2019 Opening Balance 93.08 91.64 Additions during the year 22.16 13.04 Reductions during the year 18.78 11.60 Closing Balance 96.46 93.08 Total Provision held 96.19 90.82

1.2.5. Sale and transfers to/ from HTM Category During the year ended March 31, 2020 the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securi- ties and sales to RBI under OMO auctions and repurchase of Government Securities by Goverment of India) amounts to ` 2,589.94 crores which exceeds 5% of the book value of investments held in HTM category at the beginning of the year by `1,394.85 crores. (` in Crore) Market value of investments held in HTM category Excess of book value over market value for which provision is not made ` 29,357.73 Nil During the year ended March 31, 2019, the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of investments held in HTM category at the beginning of the year 2018-19.

1.3. Derivatives Disclosure in respect of Outstanding Interest Rate Swaps (IRS) and Forward Rate Agreement (FRA)

1.3.1 A) Exchange Traded Interest Rate Derivatives: (` in Crore) Sl.No Particulars March 31, 2020 March 31, 2019 (i) Notional principal amount of exchange traded interest rate derivatives undertaken during the year (instrument-wise) a) 6.79 G-Sec 2027 - 1,270.96 b) 7.17 G-Sec 2028 210.20 1,768.08 c) 6.45 G-Sec 2029 517.80 - d) 7.26 G-Sec 2029 741.80 - (ii) Notional principal amount of exchange traded interest rate derivatives outstanding Nil Nil (iii) Notional principal amount of exchange traded interest rate derivatives outstanding and not "highly effective" Nil Nil (Instrument wise) (iv) Mark-to-market value of exchange traded interest rate derivatives outstanding and not "highly effective" Nil Nil (instrument wise)

1.3.1. B) The bank had dealt in exchange traded currency futures during the financial year ended March 31, 2020 and March 31, 2019. As at March 31, 2020 and March 31, 2019 the open contracts on the exchange was Nil. 154 Annual Report 2019-20

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

1.3.2 Forward Rate Agreement (FRA)/ Interest Rate Swap (IRS)

Disclosure in respect of Outstanding Interest Rate Swaps (IRS) and Forward Rate Agreement (FRA) (` in Crore) Particulars March 31, 2020 March 31, 2019 (i) The notional principal of swap agreements 3,298.00 2,800.88 (ii) Losses which would be incurred if counter parties failed to fulfil their obligations under the agreements 15.95 9.50 (iii) Collateral required by the bank upon entering into swaps Nil Nil (iv) Concentration of credit risk arising from the swaps 42.43 37.26 (v) The fair value of the swap book (10.86) (1.11)

The nature and terms of the IRS as on March 31, 2020 are set out below: Nature Nos. Notional Principal Benchmark Terms Trading 54 `1750.00 Crore MIOIS Fixed payable v/s floating receivable Trading 41 `1200.00 Crore MIOIS Fixed receivable/floating payable Trading 1 `174.00 Crore USD LIBOR 3M Fixed receivable/floating payable Trading 1 ` 174.00 Crore USD LIBOR 3M Fixed receivable/floating payable

The nature and terms of the IRS as on March 31, 2019 are set out below: Nature Nos. Notional Principal Benchmark Terms Trading 43 `1225.00 Crore MIOIS Fixed payable v/s floating receivable Trading 42 `1225.00 Crore MIOIS Fixed receivable/floating payable Trading 1 `175.44 Crore USD LIBOR 3M Fixed receivable/floating payable Trading 1 `175.44 Crore USD LIBOR 3M Fixed payable v/s floating receivable

The bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2020 and March 31, 2019. 1.3.3. Disclosure on Risk exposure in Derivatives

Qualitative disclosures:

(a) Structure and organization for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or Mitigating risk and strategies and processes for monitoring the continuing effectiveness of Hedges/ mitigants: Derivatives are financial instruments whose characteristics are derived from an underlying asset like interest rates, exchange rates or indices. The Bank undertakes over the counter and exchange traded derivative transactions for Balance Sheet management and also for proprietary trading/market making. Bank offers derivative products to the customers to enable them to hedge their exposure within the prevalent regulatory guidelines. Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR etc) in over the counter/exchange traded derivatives. The Bank also undertakes transactions in Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks primarily credit, market, operational, legal, and reputation. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions. The derivative transactions are governed by the Investment, forex and derivative policy and market risk management policy of the Bank as well as by the extant RBI guidelines. Various operational/risk limits are set up and actual exposures are monitored vis-à-vis the limits allocated. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. Risk limits are in place for risk parameters viz. Value at Risk (VaR), Net loss, deal size, PVBP. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically. The Treasury front office enters into derivative transaction with customers and interbank counterparties. The Bank has an independent back

155 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) office and mid office as per regulatory guidelines. The MTM position of the derivative portfolio is monitored on a regular basis. The impact on derivative portfolio on account of the probable market movements are assessed on regular basis. The risk profile of the outstanding portfolio is reviewed by the Board at regular intervals.

(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, Premiums and discounts, valu- ation of outstanding contracts Bank deals in derivatives for hedging G-Sec or foreign currency assets/liabilities subject to the prevailing regulatory guidelines. Transactions for hedging and trading are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Transactions related to foreign exchange forward, Interest rate Future/IRS/Currency future are marked to market every month and the MTM is accounted in the books. (c) Collateral Security We have provided Sufficient Collateral Security to Central counter Parties and Exchanges wherever Applicable. As per market practice, no collateral security is insisted on for the contracts with counter parties like Banks/Primary Dealers (PDs) etc. but if a CSA (Credit Support Annexure) is signed, then collateral security is insisted as per the terms of CSA agreement. For deals with Corporate Clients, appropriate collateral security/margin etc. is stipulated wherever considered necessary as per the CSA Agreement.

(d) Credit Risk Mitigation Most of the deals have been contracted with Banks/ Major PDs and no default risk is anticipated on the deals with them.

Quantitative Disclosures (` in Crore) Sl. Currency Derivatives* Interest rate Derivatives No Particulars Year ended Year ended Year ended Year ended March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 (i) Derivatives (Notional Principal Amount) a) For hedging - - - b) For trading 4,168.43 - 3,298.00 2,800.88 (ii) Marked to Market positions a) Asset (+) 122.36 - 75.96 39.12 b) Liabilities (-) 112.10 - 86.81 40.23 (iii) Credit Exposure 424.06 - 31.37 29.78 (iv) Likely impact of one percentage change in interest rate (100*PV01) a) on hedging derivatives - - - - b) on trading derivatives 0.47 - 0.63 0.62 (v) Maximum and Minimum of 100*PV01 observed during the year a) on hedging - - - - Max = 0.47 - Max = 0.63 Max = 4.68 b) on trading Min = 0.40 - Min = 0.61 Min = 0.47 * excludes forward exchange contract. • The notional principal amount of forward exchange contracts classified as Hedging and Trading outstanding as on March 31, 2020 amounted to ` 2,429.34 Crore (Previous year `4,116.95 Crore) and ` 9,393.09 Crore (Previous year ` 9,997.27 Crore) respectively. For the hedging contract, as at 31st March, 2020 the marked to market position was asset ` 23.80 crores and liability of ` 45.31 crores (Previous year asset ` 109.82 crores and liability of ` 73.05 crores). For the trading contract, as at 31st March, 2020 the marked to market position was asset ` 148.80 crores and liability of ` 154.24 crores (Previous year asset ` 133.46 crores and liability of ` 274.09 crores). Credit expo- sure on forward exchange contracts at March 31, 2020 was ` 934.86 Crore (Previous year ` 845.42 Crore). The notional principal amounts

156 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

of derivatives reflect the volume of transactions outstanding as at the Balance Sheet date and do not represent the amounts at risk. • Interest rate derivative represents interest rate swaps. • The bank has computed the maximum and minimum of PV01 for the year based on the balances as at the end of every month. • In respect of derivative contracts, the bank evaluates the credit exposure arising therefrom, in line with RBI guidelines. Credit exposure has been computed using the current exposure method which is the sum of : a) The current replacement cost (Marked to Market value including accruals of the contract) or zero whichever is higher. b) The Potential Future Exposure (PFE) is a product of the notional principal amount of the contract and a factor that is based on the grid of credit conversion factor prescribed in RBI Guidelines, which is applied on the basis of the residual maturity and the type of contract.

1.4. Asset Quality 1.4.1 Net non-performing assets

March 31, 2020 March 31, 2019 Particulars (%) (%) Net non-performing assets as a percentage of net advances. 1.31 1.48

1.4.2 Movement in gross non-performing assets (` in Crore) Particulars March 31, 2020 March 31, 2019 Opening balance 3,260.68 2,795.62 Additions during the year 1,918.80 1,667.98 Reductions during the year 1,648.65 1,202.92 Closing balance 3,530.83 3,260.68 Note: Movement is the aggregate of quarterly movement during the year.

1.4.3 Movement in net non-performing assets (` in Crore) Particulars March 31, 2020 March 31, 2019 Opening balance 1,626.20 1,551.96 Additions during the year 626.39 767.39 Reductions during the year 645.42 693.15 Closing balance 1,607.17 1,626.20

Note: Movement is the aggregate of quarterly movement during the year.

1.4.4 Movement in provisions for non-performing assets (` in Crore) Particulars March 31, 2020 March 31, 2019 Opening balance 1,606.32 1,215.13 Additions during the year 1,280.45 898.87 Reductions during the year 1,001.50 507.68 Closing balance 1,885.27 1,606.32

Note: Movement is the aggregate of quarterly movement during the year. 1.4.5 Divergence in Asset classification and Provisioning for NPAs The divergence observed by RBI for the Financial year 2018-19 in respect of the Bank’s asset classification and provisioning under the extant prudential norms on income recognition, asset classification and provisioning is below the regulatory requirement for disclosure and hence the disclosure as required under RBI Circulars DBR.BP.BC.No.63/21.04.018/2016-17 dated April 18, 2017 and DBR.BP.BC.No.32/21.04.018/2018- 19 dated April 1, 2019 on ‘Divergence in the asset classification and provisioning’, is not required to be made.

157 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

1.4.6 A) Particulars of Accounts Restructured Details of loan assets subjected to restructuring during the year ended March 31, 2020: (` in Crore)

Type of Restructuring Under CDR Mechanism Under SME Debt Restructuring Mechanism Stand- Sub- Doubt- Loss Total Stand- Sub- Doubtful Loss Total Asset Classification ard Stand- ful ard Standard ard

Restructured accounts as at No. of borrowers 1 - 4 1 6 - - - - - April 01, 2019 (Opening Bal- ance) Amount Outstanding – (a) Restructured facility 29.48 - 36.84 - 66.32 - - - - -

b) Other facility 22.16 - 20.05 3.78 45.99 - - - - -

Provision thereon 8.77 - 2.63 - 11.40 - - - - -

Movement in balance for ac- No. of borrowers counts appearing under open- ing balance ------

Amount Outstanding – (a) Restructured facility (0.69) - - - (0.69) - - - - -

b) Other facility ------

Provision thereon (8.77) - (2.63) - (11.40) - - - - -

Fresh Restructuring during the No. of borrowers ------year ended March 31, 20201 Amount Outstanding – (a) Restructured facility ------

b) Other facility ------

Provision thereon ------

Upgradation to restructured No. of borrowers ------standard category during the year ended March 31, 2020 Amount Outstanding – (a) Restructured facility ------

b) Other facility ------

Provision thereon ------

Restructured Standard Advanc- No. of borrowers - - - - es which cease to attract higher provisioning and/or additional Amount Outstanding – risk weight at the end of March (a)Restructured facility - - - - 31, 2020 b)Other facility - - - -

Provision thereon - - - -

Downgradation of restructured No. of borrowers (1) - 1 ------accounts during the year ended March 31,20202 Amount Outstanding – (a)Restructured facility (28.79) - 28.79 ------

b)Other facility (22.16) - 22.16 ------

Provision thereon ------

Write-offs of restructured ac- No. of borrowers - - (1) - (1) - - - - - counts during the year ended March 31, 20203 Amount Outstanding – (a)Restructured facility - - (17.75) - (17.75) - - - - -

b)Other facility ------

Provision thereon ------

Restructured accounts as at No. of borrowers - - 4 1 5 - - - - - March 31, 2020 (closing fig- ures)4 Amount Outstanding – (a) Restructured facility - - 47.88 - 47.88 - - - - -

b) Other facility - - 42.21 3.78 45.99 - - - - -

Provision thereon ------

158 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

(` in Crore)

Type of Restructuring Others Total Stand- Sub- Doubt- Loss Total Stand- Sub- Doubtful Loss Total Asset Classification ard Stand- ful ard Standard ard

Restructured accounts as at No. of borrowers 1472 23 52 60 1607 1473 23 56 61 1613 April 01, 2019 (Opening Bal- ance) Amount Outstanding – (a)Restructured facility 367.76 0.61 278.12 35.94 682.43 397.24 0.61 314.96 35.94 748.75

b)Other facility 0.50 - 2.12 12.17 14.79 22.66 - 22.17 15.95 60.78

Provision thereon 51.48 0.05 0.03 - 51.56 60.25 0.05 2.66 - 62.96

Movement in balance for ac- No. of borrowers ------counts appearing under open- ing balance Amount Outstanding – (a) Restructured facility (11.48) (0.02) (0.40) - (11.90) (12.17) (0.02) (0.40) - (12.59)

b) Other facility 0.59 - (0.05) - 0.54 0.59 - (0.05) - 0.54

Provision thereon (1.44) (0.05) (0.03) - (1.52) (10.21) (0.05) (2.66) - (12.92)

Fresh Restructuring during the No. of borrowers 96 2 8 - 106 96 2 8 - 106 year ended March 31, 20201 Amount Outstanding – (a) Restructured facility 196.99 0.20 38.02 - 235.21 196.99 0.20 38.02 - 235.21

b) Other facility ------

Provision thereon 9.85 - 3.83 - 13.68 9.85 - 3.83 - 13.68

Upgradation to restructured No. of borrowers 10 (8) (1) (1) - 10 (8) (1) (1) - standard category during the year ended March 31, 2020 Amount Outstanding – (a)Restructured facility 0.24 (0.18) (0.04) (0.02) - (0.24) (0.18) (0.04) (0.02) -

b)Other facility ------

Provision thereon ------

Restructured Standard Advanc- No. of borrowers - - - - es which cease to attract higher provisioning and/or additional Amount Outstanding – risk weight at the end of March (a) Restructured facility - - - - 31, 2020 b)Other facility - - - -

Provision thereon - - - -

Downgradation of restructured No. of borrowers (243) 220 14 9 - (244) 220 15 9 - accounts during the year ended March 31, 20202 Amount Outstanding – (a)Restructured facility (10.68) 7.34 3.09 0.25 - (39.47) 7.34 31.88 0.25 -

b)Other facility - - - - - (22.16) - 22.16 - -

Provision thereon ------

Write-offs of restructured ac- No. of borrowers (271) (6) (8) (13) (298) (271) (6) (9) (13) (299) counts during the year ended March 31, 20203 Amount Outstanding – (a) Restructured facility (279.42) (0.04) (274.47) (34.89) (588.82) (279.42) (0.04) (292.22) (34.89) (606.57)

b) Other facility - - (1.92) - (1.92) - - (1.92) - (1.92)

Provision thereon (47.06) - - - (47.06) (47.06) - - - (47.06)

Restructured accounts as at No. of borrowers 1064 231 65 55 1415 1064 231 69 56 1420 March 31, 2020 (closing fig- ures)4 Amount Outstanding – (a)Restructured facility 263.41 7.91 44.32 1.28 316.92 263.41 7.91 92.20 1.28 364.80

b)Other facility 1.09 - 0.15 12.17 13.41 1.09 - 42.36 15.95 59.40

Provision thereon 12.83 - 3.83 - 16.66 12.83 - 3.83 - 16.66

159 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

1. Additional /Fresh sanctions made to existing restructured accounts includes `54.26 Crore (28 Borrowers, Provision made is ` 2.71 Crore) Balance as on March 31,2020 2. Downgradation of accounts from restructured standard to NPA 3. Write-off of restructured accounts during the year includes recovery of ` 330.11 Crore (293 borrowers with provision ` 46.84 Crore) during the year, balance as on March 31,2020 4. Other Facility includes ` 58.16 Crore in investment

160 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

Details of loan assets subjected to restructuring during the year ended March 31, 2019: (` in Crore) Type of Restructuring Under CDR Mechanism Under SME Debt Restructuring Mechanism6 Stand- Sub- Doubt- Loss Total Stand- Sub- Doubt- Loss Total Asset Classification ard Stand- ful ard Stand- ful ard ard

Restructured accounts as at No. of borrowers 3 - 3 1 7 - - - - - April 01, 2018 (Opening Bal- ance) Amount Outstanding – (a) Restructured facility 79.61 - 20.56 - 100.17 - - - - -

b) Other facility 38.21 - 20.05 3.78 62.04 - - - - -

Provision thereon 16.99 - 0.46 - 17.45 - - - - -

Movement in balance for ac- No. of borrowers ------counts appearing under open- ing balance1 Amount Outstanding – (a) Restructured facility (4.58) - (1.49) - (6.07) - - - - -

b) Other facility (12.61) - - - (12.61) - - - - -

Provision thereon (4.59) - (0.46) - (5.05) - - - - -

Fresh Restructuring during the No. of borrowers ------year ended March 31, 20202 Amount Outstanding – (a) Restructured facility ------

b) Other facility ------

Provision thereon ------

Upgradation to restructured No. of borrowers ------standard category during the year ended March 31, 2019 Amount Outstanding – (a) Restructured facility ------

b)Other facility ------

Provision thereon ------

Restructured Standard Advanc- No. of borrowers (1) (1) - - es which cease to attract higher provisioning and/or additional Amount Outstanding – risk weight at the end of March (a) Restructured facility (27.78) (27.78) - - 31, 20193 b) Other facility (3.44) (3.44) - -

Provision thereon (1.00) (1.00) - -

Downgradation of restructured No. of borrowers (1) - 1 ------accounts during the year ended March 31,2019 Amount Outstanding – (a) Restructured facility (17.77) - 17.77 ------

b) Other facility ------

Provision thereon (2.63) - 2.63 ------

Write-offs of restructured ac- No. of borrowers ------counts during the year ended March 31, 20194 Amount Outstanding – (a) Restructured facility ------

b) Other facility ------

Provision thereon ------

Restructured accounts as at No. of borrowers 1 - 4 1 6 - - - - - March 31, 2019 (closing fig- ures)5 Amount Outstanding – (a) Restructured facility 29.48 - 36.84 - 66.32 - - - - -

b) Other facility 22.16 - 20.05 3.78 45.99 - - - - -

Provision thereon 8.77 - 2.63 - 11.40 - - - - -

161 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) (` in Crore)

Type of Restructuring Others Total Stand- Sub- Doubt- Loss Total Stand- Sub- Doubt- Loss Total Asset Classification ard Stand- ful ard Stand- ful ard ard

Restructured accounts as at No. of borrowers 23 3 68 77 171 26 3 71 78 178 April 01, 2018 (Opening Bal- ance) Amount Outstanding – (a) Restructured facility 366.75 0.45 440.46 2.21 809.87 446.33 0.46 461.03 2.21 910.03

b) Other facility 26.42 - 16.87 - 43.29 64.63 - 36.92 3.78 105.33

Provision thereon 55.17 0.02 12.32 - 67.51 72.16 0.02 12.77 - 84.95

Movement in balance for ac- No. of borrowers (2) - (15) (18) (35) (2) - (15) (18) (35) counts appearing under open- ing balance1 Amount Outstanding – (a) Restructured facility (6.20) - (26.26) (0.89) (33.35) (10.78) - (27.75) (0.89) (39.42)

b)Other facility (10.50) - (1.26) - (11.76) (23.11) - (1.26) - (24.37)

Provision thereon 0.01 - (10.88) (10.22) (21.11) (4.60) - (11.34) (10.22) (26.16)

Fresh Restructuring during the No. of borrowers 1,492 2 - - 1,494 1,492 2 - - 1,494 year ended March 31, 20192 Amount Outstanding – (a) Restructured facility 104.82 0.15 - - 104.97 104.82 0.15 - - 104.97

b) Other facility ------

Provision thereon 5.25 0.01 - - 5.26 5.25 0.01 - - 5.26

Upgradation to restructured No. of borrowers 4 - - (4) - 4 - - (4) - standard category during the year ended March 31, 2019 Amount Outstanding – (a) Restructured facility 0.08 - - (0.08) - 0.08 - - (0.08) -

b) Other facility ------

Provision thereon ------

Restructured Standard Advanc- No. of borrowers (17) (17) (18) (18) es which cease to attract higher provisioning and/or additional Amount Outstanding – risk weight at the end of March (a) Restructured facility (68.67) (68.67) (96.45) (96.45) 31, 20193 b) Other facility (3.25) (3.25) (6.69) (6.69)

Provision thereon (0.06) (0.06) (1.06) (1.06)

Downgradation of restructured No. of borrowers (28) 18 5 5 - (29) 18 6 5 - accounts during the year ended March 31, 2019 Amount Outstanding – (a) Restructured facility (29.02) 0.01 (5.69) 34.70 - (46.79) 0.01 12.08 34.70 -

b)Other facility (12.17) - - 12.17 - (12.17) - - (12.17) -

Provision thereon (8.86) 0.02 (1.38) 10.22 - (11.49) 0.02 1.25 10.22 -

Write-offs of restructured ac- No. of borrowers - - (6) - (6) - - (6) - (6) counts during the year ended March 31,20194 Amount Outstanding – (a) Restructured facility - - (130.39) - (130.39) - - (130.39) - (130.39)

b) Other facility - - (13.49) - (13.49) - - (13.49) - (13.49)

Provision thereon - - (0.03) - (0.03) - - (0.03) - (0.03)

Restructured accounts as at No. of borrowers 1472 23 52 60 1607 1473 23 56 61 1613 March 31, 2019 (closing fig- ures)5 Amount Outstanding – (a) Restructured facility 367.76 0.61 278.12 35.94 682.43 397.24 0.61 314.96 35.94 748.75

b) Other facility 0.50 - 2.12 12.17 14.79 22.66 - 22.17 15.95 60.78

Provision thereon 51.48 0.05 0.03 - 51.56 60.25 0.05 2.66 - 62.96 1 Includes account closed during the year on account of payment of outstanding facilities by the borrower also includes the difference of amount between the balance of FY18 and FY19. 2 Fresh restructured and also added few accounts during the year - amount reported here represents outstanding as on March 31, 2019. 3 Accounts which were not attracting higher provisioning and/or additional risk weight at the beginning of the financial year. 4 Includes Sale of Restructured accounts ` 96.57 Crore. 5 Other facility also includes investment in Bond/Debentures amounts to ` 58.16 crore 6 There are no SME accounts which have been restructured during the year ended March 31, 2019.

162 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) 1.4.6 B) Additional Disclosures with relation to Certain Restructuring Schemes: 1. Flexible Structuring of Existing Loans as at March 31, 2020: Nil (Previous Year: Nil). 2. Disclosures on Strategic Debt Restructuring Scheme (accounts which are currently under the stand still period) Nil (Previous year Nil) 3. Change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period) as at March 31, 2020: Nil (Previous Year: Nil) 4. Change in Ownership of Projects under Implementation (accounts which are currently under the stand-still period) at March 31, 2020:Nil (Previous Year: Nil)

5. Disclosures on the Scheme for Sustainable Structuring of Stressed Assets (S4A)

March 31, 2020 (` in Crore)

No. of accounts where Aggregate Amount Amount outstanding Provision Particulars S4A has been applied outstanding Held In Part A In Part B Classified as Standard - - - - - Classified as NPA 2 76.09 43.88 32.21 74.69

March 31, 2019 (` in Crore)

No. of accounts where Aggregate Amount Amount outstanding Provision Particulars S4A has been applied outstanding Held In Part A In Part B Classified as Standard 1 51.63 29.47 22.16 10.33 Classified as NPA 1 25.13 15.08 10.05 23.74

6. Details of MSME accounts restructured as per RBI circular No.DBR.No.BP.BC.18/21.04.048/2018-19 dated January 1, 2019

Position as on March 31, 2020 (` in Crore) No. of accounts restructured Amount Restructured Amount outstanding 76 120.44 100.09

Position as on March 31, 2019 (` in Crore) No. of accounts restructured Amount Restructured Amount outstanding 7 11.68 11.74

7. COVID-19 Regulatory Package - Asset Classification and Provisioning The SARS-CoV-2 virus responsible for COVID-19 continues to spread across the globe and India, which has contributed to a significant volatility in global and Indian Financial markets and a significant decrease in the global and local economic activities. COVID-19 outbreak was declared as a global pandemic on March 11, 2020 by World Health Organisation. The Government of India had announced a series of lock- down measures on March 24, 2020 which has been extended from time to time. The extent to which the COVID-19 pandemic will impact the Bank’s performance will depend on future developments, which are highly uncertain, including among other things, any information concerning the severity of the COVID-19 pandemic and action to contain its spread or mitigate its impact whether government mandated or elected by the Bank. The Bank’s capital and liquidity position is strong and would continue to be the focus area for the Bank. In accordance with the 'COVID-19 Regulatory Packages' announced by the RBI on March 27, 2020 and April 17, 2020 (‘the RBI guidelines’), with regard to providing relief to borrowers’ on account of COVID-19 pandemic whose accounts were standard as on February 29, 2020 , the Bank, in accordance with the Board approved policy had offered moratorium on repayment of loan instalments and/or deferment of interest due between March 1, 2020 and May 31, 2020 including relaxation in certain parameters, to all eligible borrowers, without considering the same as restructuring. Further on May 22, 2020, RBI has permitted the Banks to extend such benefits to eligible borrowers for another three months, from June 1, 2020 to August 31, 2020. In accordance with the RBI guidelines, the Bank is required to make provision @ 10% of outstanding advances over two quarters beginning with quarter ending March 31, 2020 in respect of such borrowers whose accounts,

163 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) though classified as standard as on March 31, 2020, would have become non-performing but for these benefits/relaxations extended as per RBI guidelines. The Bank, as a prudent measure, has made the entire 10% provision amounting to ` 30.27 Crore during the quarter ended March 31, 2020 itself. Further, in addition to the above, as a prudent measure, the Bank has made additional provision of ` 63.03 Crore as at March 31, 2020 against the likely impact of COVID-19 pandemic in respect of exposure of the Bank to certain specified sectors based on assessment of presently available information. The entire provision of ` 93.30 Crore in respect of COVID-19 impact is grouped in the Balance sheet under Schedule 5 - Other liabilities and provisions. (` in Crore) March 31, 2020 Amounts in SMA/overdue categories, where the moratorium/deferment was extended 3,712.62 Amount where asset classification benefits is extended 302.66 Provisions made during the quarter ended March 31, 2020 30.27 Provisions adjusted during the year ended March 31, 2020 against slippages and the residual provisions NA

8. COVID-19 Regulatory Package – Review of Resolution Timelines under the Prudential Framework of Resolution of Stressed

Assets (` in Crore) March 31, 2020 No. of accounts in which Resolution Period was extended - Amount Involved -

9. Implementation of Resolution Plans (RPs): Cases eligible for RPs during the year ended RPs Successfully implemented during the RPs under implementation during the year March 31, 2020 year ended March 31, 2020 ended March 31, 2020 Balance Outstanding No. of cases Balance Outstanding No. of cases No. of cases Balance Outstanding (` in Crore) (` in Crore) (` in Crore) 393.64 9 - - 9 393.64 Out of the above, 4 cases are fully provided in our books amounting to total of ` 317.93 Cr. 1.4.7 A) Details of financial assets sold to Securitisation / Reconstruction companies for Asset Reconstruction: (` in Crore) March 31, 2020 March 31, 2019 Particulars Standard NPA# Standard NPA# a) No of accounts - - - 4 b) Aggregate value (net of provision) of accounts sold to SC/RC - - - 99.61 c) Aggregate consideration - - - 113.44 d) Additional consideration realised in respect of accounts transferred in earlier years - - - - e) Aggregate gain/(loss) over net book value - - - 13.83 # including written off assets B) Details of Investments held as Security Receipts received by sale of NPA to Securitisation/Reconstruction Companies as at

March 31, 2020 and March 31, 2019 are as follows: (` in Crore) Backed by NPAs sold by the bank as Backed by NPAs sold by other banks/ underlying financial institutions/non-banking Total Particulars financial companies as underlying As at As at As at As at As at As at March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Book value of investments in security receipts 528.44 558.16 - - 528.44 558.16

Note: In addition to above, bank holds security receipts of ` 18.05 Crore (Previous year: ` 58.58 Crore) which are backed by standard assets sold by the bank.

164 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) C) Details of ageing of Investments held as Security Receipts as at March 31, 2020 are as follows: (` in Crore) SRs issued Within SRs issued more than 5 years SRs issued more Particulars past 5 years ago but within past 8 years than 8 years ago

(i) Book value of SRs backed by NPAs sold by the bank as underlying 216.61 303.21 8.62 Provision held against (i) 82.56 217.08 8.62 (ii) Book value of SRs backed by NPAs sold by other banks / financial insti- tutions / non-banking financial companies as underlying - - - Provision held against (ii) - - - Gross Book value 216.61 303.21 8.62 Total provision held against above 82.56 217.08 8.62 Net Book value 134.05 86.13 -

Note: In addition to above, bank holds security receipts of ` 18.05 Crore which are backed by standard assets sold by the bank, which is issued within past 5 years. Total Provision of ` 0.05 Cr is held against security receipts backed by standard assets sold by the bank. Details of ageing of Investments held as Security Receipts as at March 31, 2019 are as follows: (` in Crore) SRs issued Within SRs issued more than 5 years SRs issued more Particulars past 5 years ago but within past 8 years than 8 years ago

(i) Book value of SRs backed by NPAs sold by the bank as underlying 314.43 243.73 - Provision held against (i) 117.52 147.72 - (ii) Book value of SRs backed by NPAs sold by other banks / financial insti- tutions / non-banking financial companies as underlying - - - Provision held against (ii) - - - Gross Book value 314.43 243.73 - Total provision held against above 117.52 147.72 - Net Book value 196.91 96.01 -

Note: In addition to above, bank holds security receipts of ` 58.58 Crore which are backed by standard assets sold by the bank, which is issued within past 5 years. Total Provision of ` 0.05 Cr is held against security receipts backed by standard assets sold by the bank. 1.4.8 Details of non-performing financial assets purchased/sold

A. Details of non-performing financial assets purchased from other banks (` in Crore) Particulars March 31, 2020 March 31, 2019 1. (a) No. of accounts purchased during the year (b) Aggregate outstanding Nil NIL 2. (a) Of these, number of accounts restructured during the year (b) Aggregate outstanding

B. Details of non-performing financial assets sold to other banks (` in Crore) Particulars March 31, 2020 March 31, 2019 1. No of accounts sold 2. Aggregate outstanding NIL NIL 3. Aggregate consideration received

1.4.9 Movement of Provision on Standard Assets (` in Crore) Particulars March 31, 2020 March 31, 2019 (a) Opening balance 527.03 437.36 (b) Addition/adjustments during the year 99.08 97.86 (c) Deduction during the year - 8.19 (d) Closing balance * 626.11 527.03 * Includes Provision held towards Unhedged Foreign Currency Exposure of Customers amounting ` 5.96Crore (Previous Year: ` 5.97 Crore)

165 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) 1.5 The Key business ratios and other information: Particulars March 31, 2020 March 31, 2019 (i) Interest Income as a percentage to Working Funds* (%) 8.02 8.05 (ii) Non-interest income as a percentage to Working Funds* (%) 1.17 0.95 (iii) Operating Profit as a percentage to Working Funds* (%) 1.95 1.95 (iv) Return on Assets [Based on Average Working Fund] *(%) 0.94 0.88

(v) Business (Deposits less inter-bank deposits plus advances) per employee (` in Crore)** 21.94 19.95

(vi) Profit per employee `( in Crore)** 0.12 0.10

* Working Funds represent average of total assets as reported to RBI in Form X under Section 27 of the Banking Regulation Act, 1949 during the year. ** Productivity ratios are based on average number of employees for the year.

1.6. Asset Liability Management Maturity pattern of certain items of assets and liabilities at March 31, 2020 and March 31, 2019 is set out below: Year ended March 31, 2020 (` in Crore) Foreign Currency Foreign Currency Maturity Pattern Deposits Advances# Investments Borrowings Assets Liabilities Day 1 587.48 985.08 8,954.03 1,921.33 835.07 51.92 2 -7 days 2,636.71 707.30 120.98 - 330.46 29.55 8-14 days 1,568.21 201.77 503.28 28.68 486.15 41.07 15-30 days 2,692.33 1,202.29 277.35 197.36 115.94 247.07 31 days to 2 months 4,856.65 1,835.59 664.10 405.24 319.51 501.92 More than 2 months and up to 3 months 5,915.53 4,743.26 1,400.49 381.94 1,235.99 504.02 Over 3 months and upto 6 months 15,780.38 13,151.85 363.08 906.88 1,096.55 715.49 Over 6 months and upto 1 Year 26,635.35 15,368.05 931.35 1,221.97 1,058.81 1,253.55 Over 1 Year and upto 3 Years 60,594.18 51,035.72 2,931.77 4,489.95 694.68 2,412.26 Over 3 Years and upto 5 Years 2,862.99 14,604.68 3,041.40 371.48 539.97 1,356.63 Over 5 Years 28,160.27 18,432.32 16,704.85 447.60 227.85 - Total 152,290.08 122,267.91 35,892.68 10,372.43 6,940.98 7,113.48

# In context of COVID-19 pandemic, the Reserve Bank of India on March 27, 2020, annouced measures to support the economy and the financial system by permit- ting the lending entities to offer a three month moratorium on all term loans and interest deferment on working capital facilities outstanding as on March 1, 2020. As a prudent measure, for the purpose of ALM, the contractual inflows on borrower accounts have been suitably adjusted for the moratorum considering the potential relief to borrowers.

Year ended March 31, 2019 (` in Crore) Foreign Currency Foreign Currency Maturity Pattern Deposits Advances Investments Borrowings Assets Liabilities Day 1 515.15 1,539.05 4,742.80 448.34 573.75 91.74 2 -7 days 2,272.46 1,668.47 122.31 577.50 905.78 99.40 8-14 days 1,125.06 539.10 91.82 220.57 33.38 65.22 15-30 days 2,572.38 2,517.40 218.17 2.00 224.82 39.98 31 days to 2 months 6,550.62 3,489.84 920.16 230.89 174.56 312.85 More than 2 months and up to 3 months 6,339.50 9,502.26 1,742.37 322.29 408.49 458.71 Over 3 months and upto 6 months 12,222.52 8,989.99 1,186.08 1,023.79 853.16 411.87 Over 6 months and upto 1 Year 24,618.27 12,918.43 1,336.78 976.56 1,219.56 799.77 Over 1 Year and upto 3 Years 51,221.27 41,822.33 3,418.00 2,545.50 611.85 1,639.49

166 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) (` in Crore) Foreign Currency Foreign Currency Maturity Pattern Deposits Advances Investments Borrowings Assets Liabilities Over 3 Years and upto 5 Years 2,858.82 12,263.54 4,530.36 1,138.03 727.24 2,064.01 Over 5 Years 24,658.29 14,972.54 13,515.62 295.85 134.57 - Total 134,954.34 110,222.95 31,824.47 7,781.32 5,867.16 5,983.04 Note: Classification of assets and liabilities under the different maturity buckets is based on the same estimates and assumptions as used by the Bank for compiling the return submitted to the RBI, which has been relied upon by the auditors. Maturity profile of foreign currency assets and liabilities excludes forward exchange contracts and off balance sheet items. 1.7. Exposures

1.7.1 Exposure to Real Estate Sector (` in Crore) Category March 31, 2020 March 31, 2019 a Direct Exposure: i) Residential Mortgages: Lending fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented; 21,018.56 18,514.29 (of which individual housing loans eligible for inclusion in Priority sector advances) (3,901.09) (4,248.49) ii) Commercial Real Estate:- Lending secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, ho- tels, land acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits; 6,443.00 6,394.51 (iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures –

a) Residential Nil Nil b) Commercial Real Estate Nil Nil b) Indirect Exposure: Fund based and non-fund based exposures on (NHB) and Housing Finance Companies (HFCs). 7,404.90 6,434.15

Total Exposure to Real Estate sector 34,866.46 31,342.95

1.7.2 Exposure to Capital Market (` in Crore) Category March 31, 2020 March 31, 2019 (i) Direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt; 404.26 247.32 (ii) Advances against shares/bonds/debentures or other securities or on clean basis to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds; - - (iii) Advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security; 0.09 0.55 (iv) Advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/units of equity oriented mutual funds does not fully cover the advances; 477.66 576.58 (v) Secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers; 14.29 11.30 (vi) Loans sanctioned to corporates against the security of shares / bonds/debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources; - - (vii) Bridge loans to companies against expected equity flows/issues; - - (viii) Underwriting commitments taken up by the banks in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds; - -

167 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) (` in Crore) Category March 31, 2020 March 31, 2019 (ix) Financing to stockbrokers for margin trading; - - (x) All exposures to Venture Capital Funds (both registered and unregistered) 96.34 65.46

Total Exposure to Capital Market 992.64 901.21

1.7.3 Risk Category wise Country Exposure The net funded exposure of the Bank in respect of foreign exchange transactions with each country is within 1% of the total assets of the

Bank and hence no provision is required to be made in respect of country risk as per the RBI guidelines: (` in Crore) Exposure (net) Provision held Exposure (net) Provision held Risk category* March 31, 2020 March 31, 2020 March 31, 2019 March 31, 2019 Insignificant 1,104.76 - 1,315.91 - Low 158.68 - 140.09 - Moderate 18.65 - 20.58 - High 21.76 - 15.65 - Very High 0.65 - 0.60 - Restricted - - - - Off-credit - - - - Total 1,304.50 - 1,492.83 -

* The above figures include both funded as well as non-funded exposure. 1.7.4. During the year ended March 31, 2020 and March 31, 2019, the Bank's credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by RBI. 1.7.5 During the year ended March 31, 2020 and March 31, 2019 there are no unsecured advances for which intangible securities such as charge over the rights, licences, authority etc. has been taken as collateral by the Bank.

1.8. Details of Penalty imposed by RBI (` in Lakhs) Particulars March 31, 2020 March 31, 2019 a) Penalty imposed on currency chests 0.50 0.28 Dates of Payment Various dates Various dates b) Penalty imposed on deficiency in regulatory compliances 50.00* 500.00# Date of Payment August 14, 2019 October 15, 2018 *Penalty was imposed by RBI vide letter EFD. CO. SO. 124 / 02.02.003 / 2019-20 dated August 05, 2019. #Penalty was imposed by RBI vide letter EFD. CO. SO. 287 / 02.02.003 / 2018-19 dated September 25, 2018

2. Disclosure requirements as per Accounting Standards where RBI has issued guidelines in respect of disclosure items for ‘Notes to Accounts’

2.1. Employee Benefits (AS 15) a) Defined Contribution Plan

Provident Fund Employees, who have not opted for pension plan are eligible to get benefits from provident fund, which is a defined contribution plan. Aggregate contributions along with interest thereon are paid on retirement, death, incapacitation or termination of employment. Both the employee and the Bank contribute a specified percentage of the salary to the Federal Bank Employees Provident Fund. The Bank has no obli- gation other than the monthly contribution.

168 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

The Bank recognized ` 0.47 Crore (Previous Year: ` 0.48 Crore) for provident fund contribution in the Profit and Loss Account.

New Pension Scheme As per the industry level settlement dated April 27, 2010, employees who joined the services of the Bank on or after April 01, 2010 are not eligible for the defined benefit retirement plans (the "pension plan") whereas they will be eligible for Defined Contributory Pension Scheme (DCPS) in line with the New Pension Scheme introduced for employees of Central Government. Employee shall contribute 10% of their Basic Pay and Dearness Allowance towards DCPS and the Bank will also make a matching contribution. There is no separate Provident Fund for employees joining on or after April 01, 2010. The Bank recognized ` 36.39 Crore (Previous year: ` 30.22 Crore) for DCPS contribution in the Profit and Loss Account. b) Defined benefit plan Gratuity The Bank provides for Gratuity, a defined benefit retirement plan (the “Gratuity Plan”) covering the eligible employees. The Gratuity Plan provides a lump sum payment to vested employees on retirement, death, incapacitation or termination of employment, of an amount based on the respective employees’ salary and the tenure of employment. Vesting occurs upon completion of five years of service as per Payment of Gratuity Act, 1972 and its amendment with effect from May 24, 2010 or as per the provisions of the Federal Bank Employees’ Gratuity Trust Fund Rules / Bi-partite Award provisions. Liabilities with regard to the Gratuity Plan are determined by Actuarial valuation as on the Balance Sheet date, based upon which, the Bank contributes all the ascertained liabilities to the Federal Bank Employees’ Gratuity Trust Fund (the “Trust”). Trustees administer contributions made to the Trust and contributions are invested in specific investments as permitted by law.

Superannuation / Pension The Bank provides for monthly pension, a defined benefit retirement plan (the “pension plan”) covering eligible employees. The pension plan provides a monthly pension after retirement of the employees till death and to the family after the death of the pensioner. The monthly pension is based on the respective employees’ salary and the tenure of employment. Vesting occurs upon completion of ten years of service. The monthly pension is paid by purchasing annuities from Life Insurance Corporation of India (LIC). Liabilities with regard to the pension plan are determined by actuarial valuation as on the Balance Sheet date, based upon which, the Bank contributes all the ascertained liabilities to the Federal Bank (Employees’) Pension Fund (the “Trust”). Trustees administer contributions made to the Trust and contributions are invested in specific investments as permitted by law. The following table as furnished by Actuary sets out the funded status of gratuity / pension plan and the amount recognized in the Bank’s financial statements as at March 31, 2020. i) Change in benefit obligations: (` in Crore) Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Projected benefit obligation, beginning of the year 329.19 311.55 983.39 899.64 Service Cost 20.39 17.09 168.92 131.58 Interest cost 21.19 22.99 59.17 63.99 Actuarial (gain)/ loss 43.54 9.53 223.26 40.37 Benefits paid (39.68) (31.97) (236.76) (152.19) Projected benefit obligation, end of the year 374.63 329.19 1,197.98 983.39 ii) Change in plan assets: (` in Crore) Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, March 31, 2019 2020 Plan assets at beginning of the year at fair value 334.23 265.75 978.09 893.06 Expected return on plan assets 24.53 21.82 73.26 71.18

169 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) (` in Crore) Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Actuarial gain/(loss) 0.38 1.83 2.85 0.52 Employer’s Contributions 49.84 76.80 312.49 165.52 Benefits paid (39.68) (31.97) (236.76) (152.19) Plan assets at end of the year, at fair value 369.30 334.23 1,129.93 978.09 iii) Reconciliation of present value of the obligation and the fair value of the plan assets: (` in Crore) Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Fair value of plan assets at the end of the year 369.30 334.23 1,129.93 978.09 Present value of the defined benefit obligations at the end of the year 374.63 329.19 1,197.98 983.39 Liability/ (Asset) recognized in the Balance Sheet 5.33 (5.04) 68.05 5.30 iv) Gratuity / pension cost for the year ended March 31, 2020 (` in Crore) Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Current Service cost 20.39 17.09 168.92 131.58 Interest cost 21.19 22.99 59.17 63.99 Expected return on plan assets (24.53) (21.82) (73.26) (71.18) Actuarial (gain)/loss 43.15 7.70 220.41 39.85 Net Cost 60.20 25.96 375.24 164.24 Unamortised Gratuity expenditure of previous year expensed during cur- - 53.58 - - rent year# Net cost Debit to Profit and Loss account 60.20 79.54 375.24 164.24 Actual return on plan assets 24.91 23.65 76.11 71.70

# - Ministry of Labour and Employment, Government of India on March 29, 2018 has enhanced the gratuity ceiling to an employee under Payment of Gratuity Act, 1972 to ` 20 Lakhs from earlier limit of `10 lakhs. This change has resulted to an incremental gratuity liability amounting to ` 71.43 Crore. As per the RBI circular DBR.BP.9730/21.04.018/2017-18 dated April 27, 2018 the bank has an option to spread the impact of change in gratuity ceiling over four quarters beginning with the quarter ended March 31, 2018. The bank had availed the option to spread the incremental gratuity expenditure over four quarters beginning with the quarter ended March 31, 2018. Accordingly, during the quarter ended March 31, 2018 the bank has charged to the profit and loss account an amount of `17.85 Crore and there was an unamortised gratuity expenditure of ` 53.58 Crore. However, during the quarter ended June 30, 2018, the bank has charged to the profit and loss account the entire unamortised gratuity expenditure of ` 53.58 Crore. v) Investment details of plan Assets (` in Crore) Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Central and state Government bonds - - - - Other debt securities - - 7.99 10.99 Balance in Saving bank account with the Bank 2.42 2.62 4.14 2.68 Net current assets 0.01 0.01 0.53 0.57 Balance with LIC# 366.87 331.60 1,117.27 963.85 Total 369.30 334.23 1,129.93 978.09 # In the absence of detailed information regarding plan assets which is funded with Life Insurance Corporation of India, the composition of each major category of plan assets, the percentage or amount for each category to the fair value of plan assets has not been disclosed.

170 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) vi) Experience adjustments i) Gratuity Plan (` in Crore) March 31, 2020 March 31, 2019 March 31, 2018 March 31, 2017 March 31, 2016 March 31, 2015 Defined Benefit Obligations 374.63 329.19 311.55 260.48 246.09 209.34 Plan Assets 369.30 334.23 265.75 261.54 225.66 223.52 Surplus/[Deficit] (5.33) 5.04 (45.80) 1.06 (20.43) 14.18 Experience adjustments on Plan Liabilities [Gain / (Loss)] (10.09) (6.56) (7.08) 2.18 (46.00) (6.31) Experience Adjustments on Plan Assets [Gain / (Loss)] 3.29 0.77 1.97 (0.42) (1.97) 1.19

ii) Pension Plan (` in Crore) March 31, 2020 March 31, 2019 March 31, 2018 March 31, 2017 March 31, 2016 March 31, 2015 Defined Benefit Obligations 1,197.98 983.39 899.64 737.38 637.50 587.48 Plan Assets 1,129.93 978.09 893.06 746.33 578.27 544.40 Surplus/ [Deficit] (68.05) (5.30) (6.58) 8.95 (59.23) (43.08) Experience adjustments on Plan Liabilities [Gain / (Loss)] (95.10) (39.39) (33.27) 93.67 (142.49) (79.75) Experience Adjustments on Plan Assets [Gain / (Loss)] 7.54 (3.14) 9.60 6.66 0.18 2.19 vii) Assumptions

Gratuity Plan Pension Plan Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Discount rate 6.85% 7.78% 6.84% 7.77% Annuity rate per Rupee - - 134.98313 134.98313 Salary escalation rate 5.00% 5.00% 5.00% 5.00% Estimated rate of return on plan 7.34% 8.21% 7.49% 7.97% assets Attrition Rate 2.00% 2.00% 1.00% 1.00% Mortality Table IALM 2006-08 Ultimate IALM 2006-08 Ultimate IALM 2006-08 Ultimate IALM 2006-08 Ultimate

The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors. The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations. As the contribution expected to be paid to the defined benefit plans during the annual period beginning after the balance sheet date is based on various internal / external factors, a best estimate of the contribution is not determinable.

(c) Leave Encashment/Sick Leave / Leave Travel Concession / Unavailed Casual Leave The employees of the Bank are entitled to compensated absences. The employees can carry forward a portion of the unutilised accrued compensated absence and utilise it in future periods or receive cash compensation at retirement or termination of employment for the unutilized accrued compensated absence for a maximum of 240 days. The Bank records an obligation for compensated absences in the period in which the employee renders the services that increase this entitlement. The Bank measures the expected cost of compensated

171 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) absence as the additional amount that the Bank expects to pay as a result of the unutilised entitlement that has accumulated at the balance sheet date based on actuarial valuations. A sum of ` 25.55 Crore has been provided towards the above liabilities in accordance with AS 15 based on actuarial valuation. (Previous Year: ` 7.10 Crore) The Actuarial liability of compensated absences of accumulated privilege, sick, casual leave and leave travel concession of the employees of the Bank is given below: (` in Crore) March 31, 2020 March 31, 2019 Privilege leave 168.29 149.47 Sick leave 18.25 13.36 Leave Travel Concession 20.43 18.76 Casual Leave 1.54 1.37 Total actuarial liability 208.51 182.96 Assumptions Discount rate 6.85% 7.78% Salary escalation rate 5.00% 5.00% Attrition Rate 2.00% 2.00% The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations. The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors. The above information is as certified by the actuary and relied upon by the auditors. 2.2. Segment Reporting (AS 17)

A. Business Segments Business of the Bank is divided into four segments viz. Treasury, Corporate or Wholesale Banking, Retail Banking and other banking operations. The principal activities of these segments and income and expenses structure are as follows:

Treasury Treasury operations include trading and investments in Government and corporate debt instruments, equity and mutual funds, derivative trading and foreign exchange operations on proprietary account and for customers. The income of this segment primarily consists of earnings from the investment portfolio of the bank, gains and losses on trading operations. The principal expense of the segment consists of interest expense on funds borrowed/utilized and other allocated overheads.

Corporate/Wholesale Banking: This segment provides loans and other banking services to Corporate and other clients where value of individual exposure to the clients exceeds ` 5 Crore as defined by RBI. Revenue of this segment consists of interest and fees earned on loans to such customers and charges and fees earned from other banking services. Expenses of this segment primarily consist of interest expense on funds utilized and allocated overheads.

Retail banking: Retail banking constitutes lending and other banking services to individuals/small business customers, other than corporate/wholesale banking customers, identified on the basis of RBI guidelines. Revenue of this segment consists of interest earned on loans made to such customers and charges /fees carried from other banking services to them. The principal expenses of the segment consist of interest expenses on funds borrowed and other expenses.

Other Banking Operations This segment includes para banking activities like third party product distribution and other banking transactions, not covered under any of the above segments. The income from such services and associated costs are disclosed in this segment.

172 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

The following table sets forth, for the periods indicated, the business segment results:

As on March 31, 2020: (` in Crore) Corporate/ Whole Other Banking Business Segments Treasury Retail Banking Total sale Banking Operations Revenue 3,142.09 5,623.27 6,092.72 284.08 15,142.16 Result (net of provisions) 822.00 (328.79) 1,560.61 38.17 2,091.99 Unallocated expense (59.46) Operating profit (PBT) 2,032.53 Income taxes (489.75) Extraordinary profit/loss - Net Profit 1,542.78 OTHER INFORMATION Segment Assets 41,832.43 62,647.64 66,697.09 3.75 171,180.91 Unallocated assets 9,457.14 Total assets 180,638.05 Segment liabilities 40,753.61 60,241.01 64,214.36 0.24 165,209.22 Unallocated liabilities 911.22 Total liabilities 166,120.44

As on March 31, 2019: (` in Crore) Treasury Corporate/ Whole Retail Banking Other Banking Total Business Segments sale Banking Operations Revenue 2,547.61 5,073.76 4,883.42 265.26 12,770.05 Result (net of provisions) 410.85 259.69 1,201.86 66.90 1,939.30 Unallocated expense (32.05) Operating profit (PBT) 1,907.25 Income taxes (663.36) Extraordinary profit/loss - Net Profit 1,243.89 OTHER INFORMATION Segment Assets 35,752.97 58,169.60 56,680.73 11.38 150,614.68 Unallocated assets 8,725.31 Total assets 159,339.99 Segment liabilities 34,761.44 56,007.30 54,611.30 0.04 145,380.08 Unallocated liabilities 686.87 Total liabilities 146,066.95 Geographical Segment Information The Business operations of the Bank are largely concentrated in India and for purpose of Segmental reporting, the bank considered to operate only in domestic segment, though the bank has its operation in International Finance Service Centre (IFSC) Banking Unit in Gujarat International Finance Tec-city (GIFT). The business conducted from the same is considered as a part of Indian operations. Segment information is provided as per the MIS available for internal reporting purposes, which include certain estimates/ assumptions. The methodology adopted in compiling and reporting the above information has been relied upon by the auditors.

173 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

2.3. Related Party Disclosures (AS 18) a) Details of Related Parties: Name of the Party Nature of Relationship Fedbank Financial Services Limited Subsidiary Federal Operations and Services Limited Subsidiary IDBI Federal Life Insurance Company Limited Associate Equirus Capital Private Limited Associate Mr. Shyam Srinivasan, Managing Director & CEO Key Management Personnel Mr. Ashutosh Khajuria, Executive Director & CFO Key Management Personnel Ms. Shalini Warrier, Executive Director (from January 15, 2020) Key Management Personnel Mr. Ganesh Sankaran, Executive Director (upto February 15, 2019) Key Management Personnel Fedbank Hormis Memorial Foundation Entity in which KMPs can exercise significant influence b) Significant transactions with related parties For the year ended March 31, 2020: Items/Related Party Subsidiaries Associates Key Management Personnel Total 38.50 20.80 3.08 62.38 Deposits# (` in Crore) (42.69) (26.06) (3.08) (71.83) 1062.20 - 0.28 1062.48 Advances# (` in Crore) (1071.57) - (0.53) (1072.10) 259.20 228.21 - 487.41 Investments# (` in Crore) (259.20) (228.21) - (487.41) Interest paid (` in Crore) - 0.49 0.05 0.54 Interest received (` in Crore) 79.79 - 0.02 79.81 Income from Services Rendered to (` in Crore) 5.86 43.93 - 49.79 Expenses for Receiving services from (` in Crore) 42.80 - - 42.80 Leasing arrangements provided (` in Crore) * - - * Leasing arrangements availed (` in Crore) 1.29 - - 1.29 Receivable from (` in Crore) - 9.13 - 9.13 Payable to (` in Crore) 4.50 - - 4.50 Remuneration paid (` in Crore) - - 4.53 4.53 Dividend Received (` in Crore) - 30.57 - 30.57 Dividend Paid (` in Crore) - - 1.18 1.18 Share capital received on exercise of ESOS (` in Crore) - - 0.47 0.47 No.of Options granted under ESOS (in numbers) - - 800,000 800,000 No.of Options outstanding under ESOS (in numbers) - - 4,120,680 4,120,680 # - Represents outstanding as on March 31, 2020 * Denotes figures less than `1 Lakh. Figures in bracket indicate maximum balance outstanding during the year based on comparison of the total outstanding balances at each month end. In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided where there is only one related party in a catagory.

For the year ended March 31, 2019: Items/Related Party Subsidiaries Associates Key Management Personnel Total 75.42 22.34 0.29 98.05 Deposits# (` in Crore) (76.08) (29.35) (0.50) (105.93)

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Items/Related Party Subsidiaries Associates Key Management Personnel Total 677.58 - 0.54 678.12 Advances# (` in Crore) (677.58) - (2.12) (679.70) 195.00 227.54 - 422.54 Investments# (` in Crore) (195.00) (227.54) - (422.54) Interest paid (` in Crore) * 0.45 0.01 0.46 Interest received (` in Crore) 38.44 - 0.05 38.49 Income from Services Rendered to (` in Crore) 2.00 39.78 - 41.78 Expenses for Receiving services from (` in Crore) 19.32 - - 19.32 Receivable from (` in Crore) - 8.08 - 8.08 Payable to (` in Crore) 5.69 - - 5.69 Remuneration paid (` in Crore) - - 3.12 3.12 Dividend Paid (` in Crore) - - 0.86 0.86 Share capital received on exercise of ESOS (` in Crore) - - 17.56 17.56 No.of Options granted under ESOS (in numbers) - - 900,000 900,000 No.of Options outstanding under ESOS (in numbers) - - 3,189,430 3,189,430

# - Represents outstanding as on March 31, 2019 * Denotes figures less than ` 1 Lakh. Figures in bracket indicate maximum balance outstanding during the year based on comparison of the total outstanding balances at each month end. In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided where there is only one related party in a catagory.

2.4. Deferred Tax Assets / Liability (AS 22) The major components of deferred tax assets and deferred tax liabilities are as under: (` in Crore) March 31, 2020 March 31, 2019 Deferred Tax Liability Tax effect of items constituting deferred tax liability: (i) Interest accrued but not due 148.83 186.66 (ii) Depreciation on Investments 11.35 48.72 (iii) Depreciation on Fixed assets - 5.72 (iv) Special Reserve under Section 36(1) (viii) of the Income Tax Act, 1961 137.64 157.59 (v) Others 7.44 14.31 Total - (A) 305.26 413.00 Deferred Tax Asset Tax effect of items constituting deferred tax assets: (i) Interest/premium paid on purchase of securities 2.74 22.14 (ii) Provision for Standard Assets 157.58 184.17 (iii)Depreciation on Fixed assets 9.78 - (iv)Others 124.01 106.89 Total - (B) 294.11 313.20 Net Deferred tax liability/ (Asset) (A-B) 11.15 99.80

2.5 During the year ended March 31, 2020, the Bank had elected to exercise the option permitted under section 115BAA of the Income Tax Act, 1961 as introduced by the Taxation Laws (Amendment) Ordinance, 2019. Accordingly, the Bank has recognised Provision for Income Tax for the year ended March 31, 2020 based on the rate prescribed in the aforesaid section.

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3. Additional Disclosures as per RBI’s Master Circular on Disclosure in Financial Statements

3.1 ‘Provisions and Contingencies’ recognised in the Profit and Loss Account include: (` in Crore) Year ended March 31, 2020 Year ended March 31, 2019 i) Provision towards NPAs 1,010.47 630.55 ii) Provision for Depreciation in Value of Investments (Net) 63.19 102.93 iii) Provision for Non - Performing Investments 5.37 20.28 iv) Provision for Standard Assets 99.08 97.86 v) Provision for Taxation# 489.75 663.36 vi) Provision towards present value of sacrifice on restructuring, other contingencies etc. (5.95) 4.23 Total 1,661.91 1,519.21 #Refer Note No.2.5

3.2 Movement in floating provision is set out below: (` in Crore) Standard Assets Provision NPA Provision Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 a) Opening balance 12.75 12.75 69.18 69.18 b) Provision made during the year - - - - c) Provision utilised during the year - - - - d) Closing balance 12.75 12.75 69.18 69.18 3.3. Draw Down from Reserves The Bank has not drawn down from any reserves during the year ended March 31, 2020 and March 31, 2019

3.4. A) Disclosure of customer complaints ATMs Complaints relating Complaints relating to other Total complaints to the Bank’s customers (1) than ATM transactions (2) (1)+(2) Particulars March 31, March 31, March 31, March 31, March 31, March 31, 2020 2019 2020 2019 2020 2019 (a) No. of complaints pending at the beginning of the year 1,297 310 57 66 1,354 376 (b) No. of complaints received during the year 66,709 68,559 133,540 6,649 200,249 75,208 (c) No. of complaints redressed during the year 67,906 67,572 132,005 6,658 199,911 74,230 (d) No. of complaints pending at the end of the year 100 1,297 1,592 57 1,692 1,354 The above information is as certified by the Management and relied upon by the auditors.

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B) Disclosure of Awards passed by the Banking Ombudsman Particulars March 31, 2020 March 31, 2019 (a) No. of unimplemented awards at the beginning of the year 2@ 1@ (b) No. of awards passed by the Banking Ombudsman 1 1 (c) No. of awards implemented during the year 1* Nil (d) No. of unimplemented awards at the end of the year 2@ 2@ *Award passed in FY 18-19 which was unimplemented. Bank had filed appeal against the same in Appellate authority and was ordered in favour of Bank @ Appeals filed by Bank are still pending at Appellate authority/High court The above information is as certified by the Management and relied upon by the auditors.

3.5. Letter of Comfort The Bank has not issued any letters of comfort (LoC) on behalf of its subsidiaries during the year ended March 31, 2020 and March 31, 2019. 3.6 The Provision coverage ratio of the bank as on March 31, 2020, computed in terms of the RBI Guidelines was 72.48 % (Previous Year 67.16 %).

3.7. Bancassurance Business Details of income earned from bancassurance business: (` in Crore) Sl. Nature of Income * March 31, 2020 March 31, 2019 No. 1 For selling life insurance policies 43.94 39.72 2 For selling non-life insurance policies 22.72 16.24 3 For selling mutual fund products 2.09 3.98 4 Others# 6.56 3.57

* - includes receipts on account of marketing activities undertaken on behalf of Bancassurance partners. # - includes income on DP/Trading/PIS

3.8 Concentration of Deposits, Advances, Exposures and NPAs

3.8.1 Information on Concentration of deposits: (` in Crore)

March 31, 2020 March 31, 2019

Total deposits of twenty largest depositors 9,178.20 5,268.91 Percentage of deposits of twenty largest depositors to total deposits of the bank 6.03% 3.90%

Note: Excludes holders of certificate of deposits which are tradable instruments.

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3.8.2 Information on Concentration of advances: (` in Crore) March 31, 2020 March 31, 2019 Total advances to twenty largest borrowers 15,580.42 13,331.28 Percentage of advances to twenty largest borrowers to total advances of the bank 10.12% 9.83% Note: Advance is computed as per the definition of Credit Exposure in RBI Master Circular on Exposure Norms DBOD. No. Dir.BC.12/13.03.00/2015-16 dated July1, 2015.

3.8.3 Information on Concentration of exposure: (` in Crore) March 31, 2020 March 31, 2019 Total exposures to twenty largest borrowers/customers 16,519.67 14,189.96 Percentage of exposures to twenty largest borrowers/customers to total exposure of the bank on borrowers/ customers 10.33 10.04% Note: Exposure is computed as per the definition of Credit and Investment Exposure in RBI Master Circular on Exposure Norms DBOD. No. Dir.BC.12/13.03.00/ 2015-16 dated July1, 2015.

The bank has compiled the data for the purpose of disclosure in Note No. 3.8.1 to 3.8.3 from its internal MIS system and has been furnished by the management, which has been relied upon by the auditors.

3.8.4 Information on Concentration of NPAs: (` in Crore) March 31, 2020 March 31, 2019 Total exposures to top four NPA accounts 512.83 411.96

3.9 Sector wise advances and NPA The details of Sector-wise Gross Advances and Gross NPAs as at March 31, 2020 and March 31, 2019 are given below: (` in Crore) Sl. March 31, 2020 March 31, 2019 No. Sector* Gross Advances Gross NPA Gross NPA (%) Gross Advances Gross NPA Gross NPA (%) A Priority Sector 1. Agriculture and allied activities 14,127.29 837.31 5.93 13,704.56 678.15 4.95 2. Advances to industries sector 5,214.37 389.12 7.46 5,737.95 322.43 5.62 eligible as priority sector lending Of which: Infrastructure 1,151.36 63.41 5.51 1,342.71 45.18 3.36 3. Services 6,676.44 495.04 7.41 7,288.54 526.39 7.22 Of which: Trade 4,280.09 407.45 9.52 4,808.04 427.97 8.90 Commercial Real Estate 311.27 4.48 1.44 355.30 5.06 1.42 NBFCs 47.47 - - 505.26 0.80 0.16 Other Services 1,403.33 39.94 2.85 644.39 65.53 10.17 4. Personal loans ------5. Others 4,594.73 254.03 5.53 4,151.34 247.06 5.95 Sub-total (A) 30,612.83 1,975.50 6.45 30,882.39 1,774.03 5.74 B Non-Priority Sector 1. Agriculture and allied activities - - - 738.02 - - 2. Industry 24,246.25 420.56 1.73 19,070.98 893.97 4.69

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) (` in Crore) Sl. March 31, 2020 March 31, 2019 No. Sector* Gross Advances Gross NPA Gross NPA (%) Gross Advances Gross NPA Gross NPA (%) Of which : Infrastruture 8,637.92 161.77 1.87 7,089.20 499.01 7.04 3. Services 34,676.59 479.69 1.38 31,392.43 224.95 0.72 Of which : Trade 4,570.67 94.71 2.07 3,883.87 105.15 2.71 Commercial Real Estate 5,012.21 27.62 0.55 4,761.75 33.60 0.70 Non-Banking Finance Companies 17,069.83 281.23 1.65 14,257.92 2.32 0.02 Other services 6,627.42 60.69 0.92 8,274.95 74.13 0.90 4. Personal loans 1,491.14 33.18 2.23 741.63 11.98 1.62 5. Others 33,126.37 621.90 1.88 29,003.82 355.75 1.23 Sub-total (B) 93,540.35 1,555.33 1.66 80,946.88 1,486.65 1.84 Total (A+B) 124,153.18 3,530.83 2.84 111,829.27 3,260.68 2.92 *Classification into sectors/subsectors as above has been done based on Bank’s internal norms, which has been relied upon by the auditors.

3.10 A) Movement in gross non-performing assets (` in Crore) Particulars March 31, 2020 March 31, 2019 Gross NPAs as at the beginning of the year 3,260.68 2,795.62 Additions (Fresh NPAs) during the year# 1,918.80 1,667.98 Sub-total (A) 5,179.48 4,463.60 Less: Reduction# (i) Upgradations 403.69 464.57 (ii) Recoveries (excluding recoveries made from upgraded accounts) 510.77 385.73 (iii) Technical/ Prudential Write – offs 663.07 150.81 (iv) Write –offs other than those under (iii) above 71.12 35.50 (v) Reduction by Sale of Assets to ARCs - 166.31 Sub-total (B) 1,648.65 1,202.92 Gross NPAs as at the end of the year* (A-B) 3,530.83 3,260.68 # Aggregate of quarterly movement during the year * After considering technical/ Prudential Write – Offs

Closing Gross NPAs before technical/ Prudential Write – Offs is ` 5,839.51 Crore (Previous Year ` 4,951.86 Crore)

B) Movement in technical/prudential written off accounts is set out below: (` in Crore) Particulars March 31, 2020 March 31, 2019 Opening balance 1,691.18 1,575.89 Add: Technical write-offs during the year 663.07 150.81 Sub-total (A) 2,354.25 1,726.70 Less: Reduction due to recovery made from previously technical/prudential written-off accounts during the year 44.58 35.27 Less: Sacrifice made from previously technical/prudential written-off accounts during the year 0.99 0.25 Less: Reduction due to sale of NPAs to ARCs from previously technical/prudential written off accounts during the year - - Sub-total (B) 45.57 35.52 Closing balance at the end of the year (A-B) 2,308.68 1,691.18

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3.11. Details of Overseas Assets, NPAs and Revenue During the year ended March 31, 2016 the Bank had commenced its operation, pursuant to RBI approval, in International Finance Service Centre (IFSC) Banking Unit (IBU) in Gujarat International Finance Tec City (GIFT) and the business transaction from the same is considered as a Foreign branch for most Regulatory purpose as per para 2.2 of Annex I of RBI Circular DBR.IBD.BC 14570/23.13.004/2014-15 dated April 1, 2015. Apart from the said IBU, the bank does not have any overseas branch(s) as on March 31, 2020 and March 31, 2019. Details of Assets, NPAs and Revenue of IBU are given below: (` in Crore) Particulars March 31, 2020 March 31, 2019 Total Assets 2,794.44 2499.72 Total NPAs 189.16 - Total Revenue 99.96 115.27

3.12. Sponsored SPVs The Bank has not sponsored any special purpose vehicle which is required to be consolidated in the consolidated financial statements as per accounting norms as at March 31, 2020 and March 31, 2019.

3.13 Disclosures on Remuneration i) Qualitative disclosures a) Information relating to the composition and mandate of the Nomination, Remuneration, Compensation and Ethics Committee (or Remuneration Committee in short): The Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank, on behalf of the Board. This committee works in coordination with Risk Management Committee of the Bank, in order to achieve effective align- ment between risk and remuneration. As on March 31, 2020, the remuneration committee of the Board comprises of the following Independent Directors:

- Mr. C Balagopal - Ms. Shubhalakshmi Panse - Ms. Grace Elizabeth Koshie The above committee of the Board functions with the following objectives: a) To review the Compensation package for the MD and CEO and Executive Directors and recommend revisions for Board approval. b) To consider and approve issuance and allotment of ESOS shares to MD/EDs and employees of the Bank. c) To develop and implement an effective compensation policy, as per RBI guidelines. b) Information relating to the design and structure of remuneration processes and the key features and objectives of remu- neration policy. The compensation payable to MD & CEO, WTDs and Senior Executives is divided into fixed and variable components. The fixed compensation is determined based on the industry standards, the exposure, skill sets, talent and qualification attained by the official over his/her career span etc. Approval from RBI is obtained to decide fixed compensation for MD & CEO and WTDs. The variable compensation for MD & CEO and senior executives (Non – IBA package i.e. CGM and above) are determined based on Bank’s performance and Key Performance Areas (KPA) set for the official. KPAs contain targets on risk adjusted metrics such as Risk Adjusted Return on Capital (RAROC), Risk Adjusted Return on Risk Adjusted Capital (RARORAC), in addition to target on NPAs. The objectives of the remuneration policy are four fold:  To align compensation with prudent risk taken.  To drive sustainable performance in the Bank.  To ensure financial stability of the Bank; and.  To attract and retain talent.

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) c) Description of the ways in which current and future risks are taken into account in the remuneration processes. For the purpose of effectively aligning compensation structure with risk outcomes, the functionaries in the Bank are arranged under the fol- lowing four categories 1 Managing Director and CEO/Whole Time Directors / Senior Management Personnel 2 Executives (Non Grander Compensation Package) 3 Executives (Grander Compensation Package) 4 Other members of staff (on IBA package)

Limit on variable pay The variable compensation offered to an official would not exceed 70% of the total fixed compensation.

Severance pay and guaranteed bonus Severance pay (other than gratuity or terminal entitlements or as entitled by statute) is not paid to any official of the Bank. Sign on bonus or joining bonus is limited to the first year and is paid only as Employee stock options.

Hedging No compensation scheme or insurance facility would be provided by the Bank to employees to hedge their compensation structure to offset the risk alignment mechanism (deferral pay and clawback arrangements) embedded in their compensation arrangement. Appropriate compliance arrangements have been established to ensure that employees do not insure or hedge their compensation structure.

Compensation Recovery policy Malus/ claw back arrangement or a compensation recovery policy is provided, which will entail the Bank to recover proportionate amount of variable compensation paid to the above functionaries on account of an act or decision taken by the official which has brought forth a negative contribution to the bank at a prospective stage. If an Official covered under Compensation Recovery Policy, is responsible for any act or omission or non compliance of regulatory guidelines resulting in a penalty being imposed by any Regulators or engages in a detrimental conduct against the interests of the Bank, as determined by the Nomination Committee of the Board, within 36 months from the date of payment of variable compensation, the Bank may require such covered official to reimburse the Bank within 6 months for all, or a portion of, any bonus, incentive payment, equity based award or other compensation received by such Covered Official.

Committees to mitigate risks caused by an individual decision In order to further balance the impact of market or credit risks caused to the Bank by an individual decision taken by a senior level executive, MD & CEO or ED, the bank has constituted various committees to take decisions on various aspects: • Credit limits are sanctioned by committees at different levels. • Investment decisions of the Bank are taken and monitored by Investment committee and there is an upper limit in treasury dealings where individual decisions can be taken. • Interest rates on asset and liability products for different buckets are decided and monitored by the Asset Liability Committee of the Board (ALCO). Bank's exposure to liquidity risk are also monitored by ALCO.

Integrated Risk Management Department (IRMD) In order to effectively govern the compensation structure, IRMD would assist the Remuneration Committee of the Board to monitor, review and control various risks and balance prudent risk taking with the compensation paid out to top executives and other employees.

Compensation of risk control staff The total fixed and variable compensation paid out to the employees of Risk and Financial Control Staff are independent of business param- eters and rendering of effective support to the Remuneration Committee of the Board. The variable compensation component (Performance Linked Incentive or PLI) will be subjected to a minimum and greater proportion of compensation will be fixed in nature to ensure autonomy and independence from business goals.

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) d) Linkage of performance during a performance measurement period with levels of remuneration. The Bank’s performance is charted based on performance scorecard which takes into account various financial indicators like revenue earned, cost deployed, and profit earned, NPA position and other intangible factors like leadership and employee development. Variable pay is paid purely based on performance and is measured through Score cards for MD& CEO / EDs. The score card provides a mix of financial and non- financial, quantitative and qualitative metrics.

Compensation paid to Senior executives and other staff members on IBA package The compensation paid to other officials that include Award Staff, Officers coming under Scale I to III is fixed based on the periodic industry level settlements with Indian Banks Association. The compensation package applicable to Executives in Level 4 to 7 was fixed and governed based on the periodical industry level settlements under IBA pattern. To make the Compensation Structure market driven and competitive, a new performance based compensation package called “Grander Compensation Package” has been introduced for Executives in Level 4 (As- sistant Vice President) and above with effect from May 01, 2017. e) Bank's policy on deferral and vesting of variable remuneration and criteria for adjusting deferred remuneration before vesting and after vesting.

Deferred compensation and Performance Linkage In the event variable compensation paid to MD & CEO, ED and Senior Executives (Non-IBA) exceeds more than 50% of the fixed compensation for the year on account of high level of Bank’s performance, 60% of the variable pay so entitled to the official will be deferred for payment over a period of 3 years. The amount is parked in an escrow account and the payment will be made in the ratio of 20:30:50 over a period of three years, i.e. • 20 % of the deferred compensation will be paid in the first year • 30% of the deferred compensation in the second year; and • 50% of the deferred compensation in the third year

Clawback and deferral arrangements The provisions of clawback and deferral arrangements are applicable to the referred functionaries and all employees in the event their variable compensation exceeds 50 % of their fixed emoluments f) Description of the different forms of variable remuneration Bank uses an optimum mix of cash, ESOPS and variable PLI to decide the compensation of employees in all categories. The distribution of ESOPS and variable PLI are higher in top levels and is linked with their performance measurements taken from Scorecards. This is done to align the compensation of senior staff with their performance, risk and responsibility taken in higher assignments. ii) Quantitative disclosures March 31, 2020 March 31, 2019 (a) Number of meetings held by the Remuneration Committee during the financial year and remuneration 10 6 paid to its members. ` 810,000/- ` 540,000/- (b) (i) Number of employees having a variable remuneration award during the financial year. 3 3 (ii) Number and total amount of sign-on awards made during the financial year. Nil Nil (iii) Details of guaranteed bonus, if any, paid as joining / sign on bonus Nil Nil (iv) Details of severance pay, in addition to accrued benefits, if any. Nil Nil (c) (i) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instru- Nil Nil ments and other forms (ii) Total amount of deferred remuneration paid out in the financial year. Nil Nil (d) Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred Fixed – 3.75 Fixed – 3.12 and non-deferred (` in Crore) Variable – 0.78 Variable – Nil (e) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post Nil Nil explicit and / or implicit adjustments.

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3.14 Securitisation Transactions The Bank has not done any securitisation transactions during the year ended March 31, 2020 and March 31, 2019.

3.15 Details of Intra-Group Exposure (` in Crore) Sl. No. Particulars March 31, 2020 March 31, 2019 1 Total amount of intra-group exposures* 1,108.96 705.17 2 Total amount of top-20 intra group exposures* 1,108.96 705.17 3 Percentage of intra group exposures to total exposure of the bank to borrowers/ custom- 0.69% 0.50% ers *(%) 4 Details of breach of limits on intra-group exposures and regulatory action thereon, if any NIL NIL * Exposure is computed as per the definition of Credit and Investment Exposure in RBI Master Circular on Exposure Norms DBR. No. Dir.BC.12/13.03.00/ 2015-16 dated July1, 2015.

3.16 Transfers to Depositor Education and Awareness (DEA) Fund In accordance with the guidelines issued by the RBI, the Bank transfers the amount to the credit of any account which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years to the DEA Fund. Details of amounts transferred to DEA Fund are set out below: (` in Crore) Particulars March 31, 2020 March 31, 2019 Opening balance of amounts transferred to DEA Fund 114.56 103.07 Add: Amounts transferred to DEA Fund during the year 67.25 13.56 Less: Amounts reimbursed by DEA Fund towards claims 4.44 2.08 Closing balance of amounts transferred to DEA Fund 177.37 114.56

3.17 Unhedged Foreign Currency Exposure

The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency exposures and encouraging them to hedge the unhedged portion. The policy framework also articulates the methodologies for ascertaining the amount of unhedged foreign currency exposures, estimating the extent of likely loss, estimating the riskiness of the unhedged position and mak- ing appropriate provisions and capital charge as per extant RBI guidelines. In line with the policy, assessment of unhedged foreign currency exposure is a part of credit appraisal while proposing limits or at the review stage. Further, the bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank maintains incremental provisions and additional capital for the unhedged foreign currency exposures of its borrowers in line with the extant RBI guidelines. The Bank has maintained ` 5.96 Crore (Previous year ` 5.97 Crore) as provision and ` 4.20 Crore (Previous year ` 4.42 Crore) as additional capital for computation of capital adequacy ratio on account of the unhedged foreign currency exposures of borrowers as at March 31, 2020.

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3.18 Liquidity Coverage Ratio (LCR) a) Quantitative Disclosure The following table sets forth, the daily average of unweighted and weighted values for all the quarters in the year ended March 31, 2020: (` in Crore)

Quarter ended Quarter ended Quarter ended Quarter ended March 31, 2020 December 31, 2019 September 30, 2019 June 30, 2019 Particulars Total Un- Total Total Un- Total Total Un- Total Total Un- Total weighted Weighted weighted Weighted weighted Weighted weighted Weighted Value Value Value Value Value Value Value Value High Quality Liquid Assets 1 Total High Quality Liquid Assets (HQLA) 28,976.25 26,816.35 24,524.60 23,278.27 Cash outflows 2 Retail deposits and deposits from small business customers, of which: 125,491.75 11,719.49 123,228.70 11,499.65 119,909.57 11,181.96 116,970.34 10,897.03 (i) Stable deposits 16,593.62 829.68 16,464.51 823.23 16,179.75 808.98 15,999.95 800.00 (ii) Less stable deposits 108,898.13 10,889.81 106,764.19 10,676.42 1,03,729.82 10,372.98 100,970.39 10,097.03 3 Unsecured wholesale funding, of which: 12,178.51 5,994.52 9,899.21 4,367.77 8,754.80 3994.19 8,585.33 4,554.60 (i) Operational deposits (all counter- parties) ------(ii) Non-operational deposits (all counterparties) 12,178.51 5,994.52 9,899.21 4,367.77 8754.80 3,994.19 8,585.33 4,554.60 (iii) Unsecured debt ------4 Secured wholesale funding - - - - 5 Additional requirements, of which 1.87 1.87 0.63 0.63 1.19 1.19 1.09 1.09 (i) Outflows related to derivative exposures and other collateral requirements 1.87 1.87 0.63 0.63 1.19 1.19 1.09 1.09 (ii) Outflows related to loss of funding on debt products ------(iii) Credit and liquidity facilities ------6 Other contractual funding obliga- tions 30,690.59 2,921.01 27,718.35 2,622.83 27,398.32 2,609.12 25,831.38 3,288.79 7 Other contingent funding obliga- tions 7,958.10 238.74 7,442.36 223.27 7,351.84 220.56 6,789.76 203.69 8 TOTAL CASH OUTFLOWS 20,875.63 18,714.15 18,007.02 18,945.20 Cash Inflows 9 Secured lending (e.g. reverse repos) 2,400.02 - 1,434.66 - 1,112.62 - 401.70 - 10 Inflows from fully performing exposures 6,652.90 5,246.00 6,856.07 5,398.97 6,698.63 5,056.67 6,053.79 4,179.18 11 Other cash inflows 0.79 0.79 0.72 0.72 1.46 1.46 0.03 0.03 12 TOTAL CASH INFLOWS 9,053.71 5,246.79 8,291.45 5,399.69 7,812.71 5,058.13 6,455.52 4,179.21 13 TOTAL HQLA 28,976.25 26,816.35 24,524.60 23,278.27 14 TOTAL NET CASH OUTFLOWS 15,628.84 13,314.46 12,948.89 14,765.99 15 LIQUIDITY COVERAGE RATIO (%) 185.40% 201.41% 189.40% 157.65%

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The following table sets forth, the daily average of unweighted and weighted values for all the quarters in the year ended March 31, 2019 (` in Crore)

Quarter ended Quarter ended Quarter ended Quarter ended March 31, 2019 December 31, 2018 September 30, 2018 June 30, 2018 Particulars Total Un- Total Total Un- Total Total Un- Total Total Un- Total weighted Weighted weighted Weighted weighted Weighted weighted Weighted Value Value Value Value Value Value Value Value High Quality Liquid Assets 1 Total High Quality Liquid Assets (HQLA) 21,563.71 19,933.03 17,619.80 15,557.37 Cash outflows 2 Retail deposits and deposits from small business customers, of which: 111,575.95 10,375.88 108,544.80 10,085.88 104,405.49 9,685.13 100,516.12 9,313.40 (i) Stable deposits 15,634.39 781.72 15,372.12 768.61 15,108.34 755.42 14,764.24 738.21 (ii) Less stable deposits 95,941.55 9,594.16 93,172.68 9,317.27 89,297.15 8,929.71 85,751.88 8,575.19 3 Unsecured wholesale funding, of which: 8,446.61 4,925.79 7,321.66 3,842.60 7,088.42 3,603.26 6,827.43 3,917.01 (i) Operational deposits (all counter- parties) ------(ii) Non-operational deposits (all counterparties) 8,446.61 4,925.79 7,321.66 3,842.60 7,088.42 3,603.26 6,827.43 3,917.01 (iii) Unsecured debt ------4 Secured wholesale funding - - - - 5 Additional requirements, of which 7.83 7.83 17.53 17.53 3.02 3.02 4.52 4.52 (i) Outflows related to derivative exposures and other collateral requirements 7.83 7.83 17.53 17.53 3.02 3.02 4.52 4.52 (ii) Outflows related to loss of funding on debt products ------(iii) Credit and liquidity facilities ------6 Other contractual funding obliga- tions 20,179.39 1,968.52 19,441.07 1,953.23 18,449.07 1,904.60 17,883.84 1,821.54 7 Other contingent funding obliga- tions 7,110.67 213.32 7,502.76 225.08 7,214.25 216.43 6,857.79 205.73 8 TOTAL CASH OUTFLOWS 17,491.34 16,124.32 15,412.44 15,262.20 Cash Inflows 9 Secured lending (e.g. reverse repos) 152.78 - 385.11 - 738.01 - 744.41 - 10 Inflows from fully performing exposures 5,105.01 3,675.38 5,820.52 4,152.27 6,407.81 4,578.82 6,761.64 5,026.87 11 Other cash inflows 6.64 6.64 0.80 0.80 1.46 1.46 7.41 7.41 12 TOTAL CASH INFLOWS 5,264.42 3,682.02 6,206.43 4,153.07 7,147.28 4,580.28 7,513.45 5,034.28 13 TOTAL HQLA 21,563.71 19,933.03 17,619.80 15,557.37 14 TOTAL NET CASH OUTFLOWS 13,809.32 11,971.25 10,832.15 10,227.92 15 LIQUIDITY COVERAGE RATIO(%) 156.15% 166.51% 162.66% 152.11%

Note: LCR data has been computed based on simple average of daily observations.

185 Financial Statements of Bank Federal THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) b) Qualitative Disclosure The Bank adheres to RBI guidelines on Liquidity Coverage Ratio, Liquidity Risk Monitoring Tools and the LCR Disclosure Standards pursuant to the Basel III Framework on Liquidity Standards that are applicable to banks in India with effect from January 1, 2015. Liquidity Coverage Ratio (LCR) promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days. LCR is computed on a daily basis from 1st January 2017. Bank has computed the LCR of the IFSC banking Unit at GIFT City on a standalone basis as per the extant guidelines. Bank has not computed LCR separately for any foreign currency since the aggregate liabilities denominated in any foreign currency doesn’t amount to 5 percent or more of the Bank’s total liabilities. Bank has consistently maintained LCR above 100% during Fiscal 2020, as against the regulatory minimum of 100%.

On an average, 98% of the HQLA maintained by the Bank comprises of Level 1 assets which is the most liquid asset category. Cash in hand, excess CRR and SLR, G-Sec within mandatory SLR requirement permitted by RBI under MSF (presently 2% of NDTL) and facility to avail liquid- ity ratio (presently 14.5% of NDTL) constitutes Level 1 HQLA. Level 2 Assets maintained by the Bank comprises of (a) marketable securities representing claims on or claims guaranteed by sovereigns, Public Sector Entities (PSEs) or multilateral development banks that are assigned a 20% risk weight under the Basel III Standardized Approach for credit risk and that are not issued by a bank/financial institution/NBFC or any of its affiliated entities and (b) Corporate bonds, not issued by a bank/financial institution/NBFC or any of its affiliated entities, which have been rated BBB- or above by an Eligible Credit Rating Agency. HQLA is also well diversified across various instruments and liquid asset types and should provide the Bank with adequate and timely liquidity.

Bank has a well-diversified funding portfolio. Retail deposits, considered as stable from a liquidity perspective is the major funding source of the Bank, indicating lower dependence of the Bank on wholesale funds.

The liquidity risk management in the Bank is guided by the ALM Policy. Asset Liability Management Committee (ALCO) is the executive level committee responsible for process in the Bank. Bank’s liquidity management is actively done by the Treasury department as per the directions of ALCO. Integrated Risk Management Department actively monitors the liquidity position of the Bank and apprises ALCO on a continuous basis to initiate appropriate actions to ensure that the liquidity position is well within the Risk Appetite set by the Board of Directors.

3.19 Disclosure in respect of ILFS and ILFS entities.

March 31, 2020 For the year ended March 31, 2020, the disclosure is not required to be made as per RBI circular DBR.BP.BC.No.38/21.04.048/2018-19 dated May 8, 2019.

March 31, 2019 (` in Crore)

Of (1), total amount of exposures which are NPA as Provisions required to be made Amount Outstanding Provision actually held per IRAC norms and not classified as NPA as per IRAC norms (1) (4) (2) (3) 246.20 32.37 4.86 21.03*

* This comprises of provision @ 15% on exposure, which is NPA as per IRAC norms and not classified as NPA and provision @ 7.5% on exposure, which is standard as per IRAC norms. In respect of balance exposure, the Bank is receiving due payment from tolls and annuities from the operating assets through an escrow ac- count. The amount of ` 21.03 crore has been considered as provision for standard assets.

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4. Other Disclosures 4.1. Earnings per Share ('EPS')

Particulars March 31, 2020 March 31, 2019 Weighted average number of equity shares used in computation of basic earnings per share (in 000’s) 1,989,049 1,980,208 Weighted average number of equity shares used in computation of diluted earnings per share (in 000’s) 2,004,059 1,992,628 Nominal Value of share (in `) 2.00 2.00 Basic earnings per share (in `) 7.76 6.28 Diluted earnings per share ( in `) 7.70 6.24 Earnings used in the computation of basic and diluted earnings per share (` in ‘000) 15,427,811 12,438,883

4.2 A. Equity Issue During the year ended March 31, 2020, the Bank has allotted 7,612,869 equity shares consequent to exercise of ESOS and 1,500 equity shares pertaining to Rights issue of 2007, which resulted in an increase of ` 1.52 Crore in Share Capital and ` 31.31 Crore in Share premium account. During the year ended March 31, 2019, the Bank has allotted 12,905,764 equity shares consequent to exercise of ESOS which resulted in an increase of ` 2.58 Crore in Share Capital and ` 52.79 Crore in Share premium account.

B. Subscribed and paid up capital includes: (i) 16,590 shares of ` 2/- each (Previous Year 16,590 shares of ` 2/- each) issued for consideration other than cash. (ii) 31,802,641 underlying equity shares of ` 2/- each (Previous Year 29,273,675 equity shares of ` 2/- each) held by custodian on behalf of holders of Global Depository Receipts (GDRs).

C. The following allotments are kept pending following orders from various courts (i) Allotment of 6,530 shares of ` 2/- each (Previous year 6,530 shares of ` 2/- each) pertaining to the Right issue of 1993 issued at premium of ` 5/- per share (ii) 262,100 shares of ` 2/- each (Previous year 262,100 shares of ` 2/- per share) pertaining to the Rights issue of 1996 issued at a premium of ` 28/- per Share (iii) 1,074,165 equity shares of ` 2/- each (Previous year 1,075,665 shares of ` 2/- per share), at a premium of ` 48/- per share pertaining to Rights issue of 2007 Issue of certificates/credit in demat account in respect of the following Bonus issues are kept in abeyance consequent to injunction orders from various courts. a) 406,670 shares of ` 2/- each (Previous year 407,670 shares of ` 2/- each) out of the Bonus issue of 2004 and b) 612,005 bonus shares of ` 2/- each (Previous year 613,505 bonus shares of ` 2/- each), out of the Bonus issue of 2015.

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D. Employee Stock Option Scheme (“ESOS”):

(i) Employee Stock Option Scheme 2010 (ESOS 2010) Shareholders of the bank had approved Employee Stock Option Scheme 2010 (ESOS 2010) through postal ballot, the result of which was announced on December 24, 2010, enabling the Board and/or the “Compensation Committee” to grant such number of equity shares, in- cluding options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the bank granted the following options: Number of Options March 31, 2020 March 31, 2019 Outstanding at the beginning of the year 24,147,513 38,476,532 Surrendered during the year - - Granted during the year - - Exercised during the year 7,123,602 12,903,339 Forfeited/lapsed during the year 966,570 1,425,680 Outstanding at the end of the year 16,057,341 24,147,513 Options exercisable 15,897,341 23,640,013 As per SEBI guidelines the accounting for ESOS can be done either under the ‘Intrinsic value basis’ or ‘Fair value basis’. The Compensation Committee in their meeting dated May 10, 2012 decided to adopt ‘Intrinsic value method’ for accounting of ESOS, in terms of the power vested on them as per the resolution of EGM dated December 24, 2010. In accordance with the SEBI Guidelines and the guidance note on “Accounting for Employee Share based payments” issued by the ICAI, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period. ii) Employee Stock Option Scheme 2017 (ESOS 2017) Shareholders of the bank had approved The Federal Bank Limited Employee Stock Option Scheme 2017 (ESOS 2017) AGM held on July 14, 2017, as a Special Resolution, enabling the Board and/or the “Compensation Committee” to grant such number of equity shares, including options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the bank granted the following options: Number of Options March 31, 2020 March 31, 2019 Outstanding at the beginning of the year 50,336,281 15,770,539 Surrendered during the year - - Granted during the year 30,522,736 37,231,307 Exercised during the year 489,267 2,425 Forfeited/lapsed during the year 3,141,840 2,663,140 Outstanding at the end of the year 77,227,910 50,336,281 Options exercisable 28,840,450 7,766,862

As per SEBI guidelines the accounting for ESOS can be done either under the ‘Intrinsic value basis’ or ‘Fair value basis’. As per the approval of shareholders, the Bank has adopted ‘Intrinsic value method’ for accounting of ESOS. In accordance with the SEBI Guidelines and the guidance note on “Accounting for Employee Share based payments” issued by the ICAI, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period.

188 Annual Report 2019-20

THE FEDERAL BANK LIMITED SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) iii) Effect of Fair value method of accounting ESOP: If “Fair Value Method” had been adopted based on “Black-Scholes pricing model” for pricing and accounting of options, net profit would be lower by ` 56.49 Crore (Previous Year: ` 70.36 Crore). The modified basic and diluted earnings per share for the year, had the Bank followed Fair Value Method of accounting for ESOS compensation cost would be ` 7.47 and ` 7.42 (Previous Year: ` 5.93 and ` 5.80) respectively.

E. Proposed Dividend and Tax on Proposed Dividend The Reserve Bank of India, vide its circular dated April 17, 2020, has directed that banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions, with a view that banks must conserve capital in an en- viroment of heightened uncertainty caused by COVID-19 pandemic. Accordingly, the Board of Directors of the Bank have not recommended any dividend for the year 2019-20 (Previous Year 70% i.e `1.40/- per Equity Share)

4.3. Fixed Assets: A) Fixed Assets as per Schedule 10 include Intangible Assets relating to Software and System Development Expenditure which are as follows: (` in Crore) Particulars March 31, 2020 March 31, 2019 Gross Block At the beginning of the year 248.75 205.50 Additions during the year 26.57 43.25 Deductions / Adjustments during the year 24.65 - At the end of the year 250.67 248.75 Depreciation / Amortisation At the beginning of the year 190.50 153.37 Charge for the year 35.77 37.13 Deductions / Adjustments during the year 24.65 - Depreciation to date 201.62 190.50 Net Block 49.05 58.25

B) Revaluation of Fixed Assets During the year 1995-96, the appreciation of ` 9.65 Crore in the value of land and buildings consequent upon revaluation by approved valuer was credited to Revaluation Reserve. There has been no revaluation of assets during the year ended March 31, 2020 and March 31, 2019.

4.4. Operating Leases: Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms. During the year an amount of ` 164.88 Crore (Previous year: `154.67 Crore) was charged to Profit and loss account.

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4.5 Provisions and Contingencies

a) Movement in provision for non-credit related* frauds included under other liabilities: (` in Crore) March 31, 2020 March 31, 2019 Opening balance at the beginning of the year 4.46 4.71 Additions during the year 1.37 0.31 Reductions during the year 0.07 0.56 Balance at the end of the year 5.76 4.46

* Provision for credit related frauds included in Provision for NPAs.

b) Movement in provision for debit card reward points: (` in Crore) March 31, 2020 March 31, 2019 Opening provision at the beginning of the year 5.19 4.60 Provision made during the year 36.49 15.61 Reductions during the year 26.10 15.02 Closing provision at the end of the year * 15.58 5.19 * The closing provision is based on the actuarial valuation of accumulated debit card reward points. This amount will be utilized towards redemption of the debit card reward points.

c) Movement in provision for other contingencies: (` in Crore) March 31, 2020 March 31, 2019 Opening provision at the beginning of the year 55.49 66.44 Provision made during the year 3.57 4.58 Provision utilized for Write off during the year 1.04 1.14 Reductions during the year 26.74 14.39 Closing provision at the end of the year 31.28 55.49 Provision maintained towards Funded Interest Term Loans is also included in the movement in provision for other contingencies during the year ended March 31, 2020 for better presentation. Previous year figure have been revised to conform to current year's presentation.

4.6 Amount of Provisions made for income-tax during the year (` in Crore) Year ended Year ended Particulars March 31, 2020 March 31, 2019 Provision for Income tax a) Current tax 562.46 687.64 b) Deferred tax (72.71) (24.28) Total 489.75 663.36

4.7 Description of contingent liabilities:

a) Claims against the Bank not acknowledged as debts These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank.

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b) Liability on account of forward exchange and derivative contracts The Bank presently enters into foreign exchange contracts and interest rate swaps with interbank Counterparties and Customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Interest rate swaps are com- mitments to exchange fixed and floating interest rate cash flows in the same currency based on fixed rates or benchmark reference. The notional amounts of such foreign exchange contracts and derivatives provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank’s exposure to credit or price risks. The fluctuation of market rates and prices cause fluctuations in the value of these contracts and the contracted exposure become favorable (assets) or unfavorable (liabilities). The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly as the aggregate contractual or notional amount of derivative financial instruments on hand can vary and the market rate fluctuations can decide the extent to which instruments are favorable or unfavorable.

c) Guarantees given on behalf of constituents As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees rep- resent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations. d) Acceptances, endorsements and other obligations These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank's customers that are accepted or endorsed by the Bank.

e) Other items for which the bank is contingently liable Includes Capital commitments and amount transferred to RBI under the Depositor Education and Awareness (DEA) Fund (Refer shedule 12 for amount relating to contigent liability).

4.8 Provisioning Pertaining to Fraud Accounts Particulars March 31, 2020 March 31, 2019 No. of frauds reported during the year 589 96 Amount involved in fraud (` in crore) 196.70 175.60 Amount involved in fraud net of recoveries/write offs/unrealised interest as at the end of the year (` in crore) 27.32 35.82 Provision made during the year (` in crore) 25.21 35.82 Provision held as at the end of the year for the above accounts (` in crore) 27.32 35.82 Amount of unamortised provision debited from “other reserves” as at the end of the year (` in crore) - -

4.9 Inter-bank participation with risk sharing The aggregate amount of participation purchased by the Bank, shown as advances as per regulatory guidelines, outstanding as of March 31, 2020 was ` 1,556.22 Crore (Previous Year: ` 2,672.22 Crore). The aggregate amount of the participation issued by the Bank, reduced from advances as per regulatory guidelines, outstanding as of March 31, 2020 was ` 450.00 Crore (Previous Year: ` 973.73 Crore).

4.10 Factoring Exposure The factoring exposure of the Bank as on March 31, 2020 is ` Nil (Previous Year: ` 409.03 Crore)

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

4.11 Priority Sector Lending Certificates (PSLC)

As per RBI Circular FIDD.CO.Plan.BC.23/04.09.01/2015-16 dated April 7, 2016 the PSLCs purchased and sold is given below: (` in Crore) March 31, 2020 March 31, 2019 Particulars Purchased (Face value) Sold (Face value) Purchased (Face value) Sold (Face value) PSLC – Agriculture - - - - PSLC – SF/MF - - - - PSLC – Micro Enterprises - - - - PSLC - General - - 3,750 -

4.12 Provision for Long Term contracts The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the bank has reviewed and recorded adequate provision as required under any Law/Accounting Standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.

4.13 Corporate Social Responsibility (CSR)

Operating Expenses include ` 42.40 Crores (Previous year: ` 17.04 Crore) for the year ended March 31,2020 towards Corporate Social Responsibility (CSR), in accordance with Companies Act, 2013.

The Bank has spent 2.79% (previous year: 1.52%) of its average net profit for the last three financial years as part of its CSR for the year ended March 31, 2020. As a responsible Bank, it has approached the mandatory requirements of CSR spend positively by utilizing the reporting year to lay required foundation on which to build and scale future projects and partnerships. The Bank Continues to evaluate strategic avenues for CSR expenditure in order to deliver maximum impact. In the years to come, the Bank will further strengthen its processes as per requirement.

The details of amount spent during the respective year towards CSR are as under: (` in Crore) Sl March 31,2020 March 31,2019 No Particulars Amount spent Amount Total Amount spent Amount Total unpaid/ unpaid/ Provision Provision 1 Construction / acquisition of any asset ------2 On purpose other than (1) above 42.40* - 42.40* 17.04 - 17.04

*including unspent portion of FY 2015-16 ` 13.88 Crore fully spent in FY 2019-20

4.14 Investor education and protection fund There has been no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Bank.

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4.15 Small and Micro Industries Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

4.16 Figures for the previous year have been regrouped and reclassified, wherever necessary to conform to current year's presentation.

For and on behalf of the Board of Directors

Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN: 08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN: 06765216) (DIN:02274773)

As per our report of even date Directors:

For B S R & Co. LLP For M. M. Nissim & Co. Shubhalakshmi Panse (DIN : 02599310) Chartered Accountants Chartered Accountants C Balagopal (DIN : 00430938) Firm's Reg.No: 101248W/W-100022 Firm's Registration No: 107122W A P Hota (DIN : 02593219) K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648)

Manoj Fadnis (DIN : 01087055) Akeel Master Varun P Kothari Sudarshan Sen (DIN : 03570051) Partner Partner Membership No.046768 Membership No. 115089 Place: Mumbai Place: Mumbai

Place: Kochi Date : May 28, 2020

193 Financial Statements of Bank Federal 194 Annual Report 2019-20

BASEL III – PILLAR 3 DISCLOSURES AS ON 31st MARCH 2020

SCOPE OF APPLICATION AND CAPITAL ADEQUACY

I. Table DF- 1 SCOPE OF APPLICATION The Basel III capital adequacy norms are applicable to The Federal Bank Limited as the top consolidated entity in the group in line with the Reserve Bank of India (RBI) guidelines on the preparation of consolidated prudential reports.

Qualitative Disclosures a) List of group entities considered for consolidation Name of the entity Whether the entity is Explain the Whether the Explain the Explain the Explain the reasons if / Country of included under accounting method entity is included method reasons for consolidated under only incorporation scope of consolidation of consolid under regulatory of consolid difference in one of the scopes of (yes / no) ation scope of ation the method of consolidation consolidation consolidation (yes / no) Fedbank Financial Services Ltd. India YES AS 21 YES AS 21 NA NA

IIDBI Federal Life IDBI Federal is an insurance entity Insurance Company and has been risk weighted for Ltd. India YES AS 23 NO NA NA capital adequacy purpose

Equirus Capital Private Ltd YES AS 23 YES AS 23 NA NA Federal Operations and Services Limited YES AS 21 YES AS 21 NA NA b) List of group entities not considered for consolidation both under the accounting and regulatory scope of consolidation Name of the Principle Total balance sheet equity % of bank’s holding in Regulatory treatment of bank’s Total balance sheet assets (as entity / Country of activity of the (as stated in the accounting the total equity investments in the capital stated in the accounting balance incorporation entity balance sheet of the legal entity) instruments of the entity sheet of the legal entity) NIL

Quantitative Disclosures c) List of group entities considered for consolidation (Amount in `Mn) Name of the entity / country of Principle activity of the entity Total balance sheet equity Total balance sheet assets incorporation (as stated in the accounting balance sheet of (as stated in the accounting balance sheet (as indicated in (i)a. above) the legal entity) of the legal entity)

Fed bank Financial Services Ltd Marketing of Bank’s own products India and lending against gold and property. 6,933.24 40,281.38 Equirus Capital Private Ltd The Company is engaged in investment banking. The company caters to both domestic and international market. 418.36 646.17 Federal Operations and Services FedServ will carry out all the Limited operational activities of the Bank including but not limited to accounts service division, payment settlement division, trade finance division, treasury back end section, contact center operations, IT support etc 109.80 136.93

195 Basel III Disclosures d) The aggregate amount of capital deficiencies in all subsidiaries which are not included in the regulatory scope of consoli- dation i.e. that are deducted Name of the subsidiaries / Principle activity of Total balance sheet equity % of bank’s holding in the Capital deficiencies country of incorporation the entity (as stated in the accounting balance sheet of the total equity legal entity) NIL

e) The aggregate amounts (e.g. current book value) of the bank’s total interests in insurance entities, which are risk-weight- ed: (Amount in `Mn.) Name of the insurance Principle activity of Total balance sheet equity % of bank’s holding in the Quantitative impact on regulatory capital entities / country of the entity (as stated in the accounting balance sheet total equity / proportion of of using risk weighting method versus incorporation of the legal entity) voting power using the full deduction method IDBI Federal Life Insurance Company Ltd Insurance 9,068.20 26% CRAR will reduce by 0.13% under India deduc-tion method f) Restrictions or impediments on transfer of funds or regulatory capital within the banking group: There are no restrictions or impediments on transfer of funds or regulatory capital within the banking group.

TABLE DF - 2: CAPITAL ADEQUACY

1. Qualitative disclosures A summary discussion of the Bank’s approach to assess the adequacy of its capital to support current and future activities 1. Policy on Internal Capital Adequacy Assessment Process has been put in place and the assessment of capital commensurate to the risk profile is reviewed on a quarterly basis. 2. Capital requirement for current business levels and estimated future business levels are assessed on a periodic basis. 3. The minimum capital required to be maintained by the Bank (including CCB) for the period ended March 31, 2020 is 10.875%. The given minimum capital requirement includes capital conservation buffer of 1.875%. Bank’s CRAR is above the regulatory minimum as stipulated in Basel III Capital Regulations.

2 Quantitative disclosures (Solo Bank) (Amount in `Mn.) 2.1 Capital requirements for Credit risk 81799.82 Portfolios subject to Standardized approach 81799.82 Securitization exposures 0.00 2.2 Capital requirements for Market risk (Standardized duration approach) 5563.95 Interest rate risk 1979.78 Foreign exchange risk (including gold) 253.13 Equity risk 3331.04 2.3 Capital requirements for Operational risk 7843.58 Basic Indicator Approach 7843.58 Total Capital Requirements 95207.35 2.4 Common Equity Tier 1, Tier 1 & Total Capital Ratios Standalone Consolidated Common Equity Tier 1 capital ratio 13.29 13.58 Tier 1 capital ratio 13.29 13.58 Total capital ratio 14.35 14.63

196 Annual Report 2019-20

RISK EXPOSURE AND ASSESSMENT

1. Credit risk Strategies and processes: The Bank is exposed to credit risk in its lending operations. The Bank’s strategies to manage the credit risks are given below: a) Defined segment exposures delineated into Business Banking, Commercial Banking, Corporate, Retail and Agri advances. b) Industry wise segment ceilings on aggregate lending by Bank across Branches. c) Individual borrower wise and borrower group wise lending ceilings linked as a percentage to the Bank’s capital funds as at the end of the previous year. d) Borrowers are subjected to credit rating and loans are granted only to those borrowers falling within defined thresholds of risk levels; the approach also includes diversification of borrowers within defined thresholds of risk levels. e) The business of the Bank is within India including the IFSC branch located in GIFT City, Gujarat. In respect of certain industries; ceiling has been fixed for specific geographies with a view to contain Concentration risk. In respect of cross border trade which would involve exposures to banks and financial institutions located outside India, there is a geographic cap on exposures apart from cap on individual bank / institution. Bank has also fixed ceiling for its foreign currency exposures. f) Bank has adopted a well-defined approach for sourcing and underwriting loan proposals. Proper due diligence is carried out while sourcing fresh credit limits. g) Credit sanctioning powers are granted as per Credit Delegation Policy based upon the amount and riskiness of the exposure. h) Regular review of all credit policies including exposure ceilings with due approval of Bank’s Board of Directors. i) Credit hub system is put in place to enhance quality of credit appraisal and underwriting process. j) Specialized Credit Advisory Teams operating at strategic locations to streamline and monitor credit processes within the credit hubs, evaluate and chart action plans to act on EWS, conduct unit visit of stressed account and formulate other measures to maintain standard health classification of credit exposures. k) Dedicated Credit Monitoring Department at national level and other key geographies to monitor / follow up of performance of loans and advances. l) Credit Administration Department at central level and at other key geographies to ensure compliance of documentation formalities and submission of post credit monitoring reports / compliance of sanction order covenants. m) Robust statistical score cards used for retail credit appraisal process. n) Bank also uses the Behavioral / transactional models for monitoring and timely intervention of retail borrowers. o) Model validation done on yearly basis to assess the discriminatory power of the model and to understand the calibration and the stability of the rating. p) Bank has laid down appropriate mechanism for ongoing identification, development and assessment of expertise of officials in the area of credit appraisal, underwriting and credit management functions. q) Internal credit rating of all credit proposals above `10 Crores is confirmed by Integrated Risk Management Department. Structure and organization of risk management function: Bank has put in place Board approved comprehensive Credit Risk Management Policy. The policy aims to provide basic framework for implementation of sound credit risk management system in the Bank. It spells out various areas of credit risk, goals to be achieved, current practices and future strategies. Bank has also operationalized required organizational structure and framework as prescribed in the policy for efficient credit risk management through proactive identification, precise measurement, fruitful monitoring and effective control of credit risk arising from its credit and investment operations. Risk Management Committee of the Board oversees Bank wide risk management and senior executive level Credit Risk Management Committee monitors adherence to policy prescriptions and regulatory directions. CRMC of the Bank meets at least once in a quarter (subject to minimum of 6 meetings in a year) to take stock of Bank’s credit risk profile based on the reports placed by Credit Risk Division of Integrated Risk Management Department. Bank has put in place a detailed Loan Policy spelling out various aspects of Credit dispensation and Credit administration. Loan policy stipulates measures for avoiding concentration risk by setting prudential limits and caps on sector wise, rating grade wise, and customer-constitution wise exposure. CRM policy gives specific instructions on valuation of collaterals. Bank has also put in place guidelines on fixing and monitoring of exposure ceilings to contain risk in credit and investment exposures.

197 Basel III Disclosures Scope and nature of risk reporting / measurement systems: Bank has implemented comprehensive risk rating system that serves as a single point indicator of diverse risk factors of counterparty and for taking credit decisions in a consistent manner. Risk rating is made applicable for all loan accounts irrespective of amount, whether funded or non-funded. However, staff loans and loan against liquid securities are exempted from rating. Bank uses different rating models which are two dimensional, viz obligor rating and facility rating. Risk rating models are drawn up in a structured manner, incorporating different factors such as borrower specific characteristics, industry specific characteristics, financials, securities offered etc. Bank has specific rating models capable of rating large corporates, traders, SME, NonBanking Finance Companies (NBFCs), real estate and service sector clients. Retail advances, small value loans and retail agriculture loans are rated using applicable score cards. Transactional / behavioral scorecards have been developed for all major retail portfolios and is used for monitoring the performance of the borrower post onboarding. All rating models are subjected to annual validation by objectively assessing the discriminatory power, calibration accuracy and stability of ratings. Rating process and rating output are used by the Bank in sanction and pricing of its exposures. Bank also conducts annual review of credit rating of its exposures and the findings are used in annual rating migration study and portfolio evaluation for exposures of above `2 Cr. Credit facilities are sanctioned at various levels in accordance with the delegation policy approved by the Board. Bank has generally adopted a committee approach for credit sanction. Credit rating assigned by an official is also subjected to confirmation by another official. Credit audit is being conducted at specified intervals. Credit risk mitigation techniques are resorted to contain the risk at the minimum level. Policies for hedging / mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Bank’s Credit Risk Management Policy stipulates various tools for mitigation of credit risk and collateral management. Investment Policy of the Bank covers risk related to investment activities of the Bank and it prescribes prudential limits, methods of risk meas- urement, and hedges required in mitigation of risk arising in investment portfolio. Risk Management Committee of the Board and executive level Credit Risk Management Committee monitor, discuss, evaluate and review risk mitigation levels and effectiveness of mitigation measures. Risk rating process by itself is an integral part of the process for selection of clients and sanction of credit facilities. Exercise of delega- tion for sanction of fresh loans or renewal / review of existing exposure by field level functionaries is permitted only for borrowers above a threshold rating grade. Entry-level restrictions are further tightened in certain sectors where market signals need for extra caution 2. Market risk Strategies and processes: Market risk is monitored through various risk limits set vide Board approved Market Risk Management Policy. Detailed policies like Asset Liability Management Policy, Investment, Derivatives and Forex policy, Market Risk Management Policy etc. are put in place for the conduct of business exposed to Market risk and also for effective management of all market risk exposures. The policies and practices also take care of monitoring and controlling of liquidity risk arising out of its banking and trading book operations. Structure and organization of risk management function: Risk Management Committee of the Board oversees bank-wide risk management. Asset Liability Management Committee (ALCO), also known as Market Risk Management Committee, is primarily responsible for establishing Market Risk Management and Asset Liability Management in the Bank. ALCO is responsible for implementing risk management guidelines issued by the regulator, leading risk management practices followed globally and monitoring adherence to the internal parameters, procedures, practices / policies and risk management prudential limits. Independent Mid office, which forms a part of Market Risk Division of IRMD, is operational in the floor of Bank’s Treasury for onsite monitoring of Treasury functions. The Mid office conducts market risk management functions like onsite monitoring of adherence to set limits, independent valuation and reporting of activities. It also computes capital charge for market risk and VaR of market portfolios on a daily basis. This separate desk monitors market / operational risks in Bank’s Treasury/ Forex operations on a daily basis and reports directly to the Head-Risk & Chief Risk Officer.

198 Annual Report 2019-20

Scope and nature of risk reporting / measurement systems: Bank has put in place regulatory/ internal limits for various products and business activities relating to trading book. Non-SLR investment exposures are subjected to credit rating. Limits for exposures to counterparties, industries and countries are monitored and risks are controlled through Stop Loss Limits, Overnight Limit, Daylight Limit, Aggregate Gap Limit, Individual Gap Limit, Inter- Bank dealing and investment limits etc. Parameters like Modified Duration, VaR etc. are used for Risk management and reporting.

Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants are discussed in ALCO and based on the views taken by/ mandates given by ALCO, hedge deals/ mitigation steps are undertaken. Liquidity risk of the Bank is assessed through Statements of Structural Liquidity and Short-Term Dynamic Liquidity. The liquidity profile of the Bank is measured on static and dynamic basis using the Statements of Structural Liquidity and Short-term Dynamic Liquidity, respectively. Structural liquidity position is assessed on a daily basis and Dynamic liquidity position is assessed on a monthly basis. Additional prudential limits on liquidity risk fixed as per ALM policy of the Bank are monitored by ALCO on a monthly basis. Interest rate risk is analyzed from earnings perspective using Traditional Gap Analysis and Economic value perspective using Duration Gap Analysis on a monthly basis. Based on the analysis, steps are taken to minimize the impact of interest rate changes. Bank is computing LCR (Liquidity Coverage Ratio) on a daily basis and NSFR (Net stable funding ratio) on a quarterly basis. Advanced techniques such as Stress testing, sensitivity analysis etc. are conducted periodically to assess the impact of various contingencies.. 3. Operational risk Strategies and processes: Operational risk is primarily managed by prescribing adequate controls and mitigation measures, which are being reviewed and updated on a regular basis, to suit the changes in business practices, structure and risk profile. A comprehensive bank-wide Business Continuity Plan is put in place to ensure continuity of critical operations of the Bank covering all identified disasters. Robust informa- tion and cyber security frameworks are established for securing the IT infrastructure and systems of the Bank.

Structure and organization of risk management function: Risk Management Committee of the Board oversees Bank-wide risk management. Bank has put in place a detailed framework for Operational Risk Management with a well-defined ORM Policy. Operational Risk Management Committee (ORMC) at the executive level oversees bank wide implementation of Board approved policies and processes in this regard. Executive level Information Security Committee is responsible for implementation of strategies and policies for protection of all information assets of the Bank.

Scope and nature of risk reporting / measurement systems: Bank is collecting operational risk loss data directly from the loss originating points. Bank has established a separate accounting procedure for operational risk events to enhance transparency and to enable effective monitoring of loss events. The operational risk loss data is consolidated, analyzed and reported to the Operational Risk Management Committee at least on a quarterly basis. Bank is identifying and assessing operational risk through Risk and Control Self Assessments (RCSA) and monitoring of Key Risk Indicators (KRI). Policies for hedging / mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Bank is using insurance for mitigating against various operational risk losses. New products and processes or any modifications to existing products and processes are vetted to identify and understand the nature and degree of the risks the Bank would be exposed to and checks and controls are implemented to mitigate the risks. To evaluate the effectiveness of the business continuity arrange- ments, periodic drills and tests are conducted. 4. Interest rate risk in Banking Book Strategies and processes: Interest Rate Risk is assessed in two perspectives – Earnings perspective using Traditional Gap Analysis to assess the impact of adverse movement in interest rate on the Net Interest Income (Earnings at Risk) and economic value perspective using Duration Gap Analysis to assess the impact of adverse movement in interest rate on the market value of Bank’s equity.

199 Basel III Disclosures Structure and organization of risk management function: Risk Management Committee at the Board level and ALCO at the executive level are responsible for effective management of Interest Rate Risk in Bank’s business. Board approved ALM Policy governs the Interest rate risk management framework of the Bank. Market Risk Management Policy takes care of the management of Interest rate risk in the Trading Book of the Bank. Scope and nature of risk reporting / measurement systems: Interest rate risk in Banking Book is assessed and Modified Duration of Equity is evaluated on a monthly basis. The likely drop in Market Value of Equity for 200 bps change in interest rates is computed and benchmarked under the Internal Capital Adequacy As- sessment Process for computation of Pillar II capital charge for Interest Rate Risk. Earnings at Risk based on Traditional Gap Analysis are calculated on a monthly basis. The results of Duration Gap Analysis as well as that of Traditional Gap Analysis including the adherence to tolerance limit set in this regard is monitored and is placed before ALCO / RMC for approval. Stress tests are conducted to assess the impact of interest rate risk under different stress scenarios on earnings of the Bank. Policies for hedging / mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Bank has put in place mitigating / hedging measures prescribed by Investment Forex and Derivative Policy, ALM Policy and Market Risk Management Policy. Risk profiles are analyzed and mitigating strategies/ hedging process are suggested and operationalized by Treasury Department with the approval of Senior Level Committees. Structure and organization of Bank’s risk management function Bank has put in place an organizational framework for Bank-wide management of risk on integrated basis. The structure ensures coordinated process for measuring and managing all material risks on an enterprise-wide basis to achieve organizational goals. The structure assures adherence to regulatory stipulations. The structure is designed in tune with the regulatory guidelines. Bank’s Board at the top of the structure has assumed overall responsibility for Bank-wide management of risk. The Board decides risk management policies of the Bank and sets risk exposure limits by assessing Bank’s risk appetite and risk bearing capacity. Risk Management Committee of the Board assumes responsibility of devising policy and strategy for enterprise-wide risk management. The Committee also sets guidelines for measurement of risks, risk mitigation and control parameters and approves adequate infrastructure for risk management. The Committee meets regularly and reviews reports placed on various risk areas. There are four support committees of senior executives (CRMC, ALCO also known as MRMC, ORMC & ISC) responsible for implementation of policies and monitoring of level of risks in their respective domains. The Committees are headed by Managing Director & CEO. Senior executives from respective functional areas and risk management are members of the Committee. The Committees meet regularly to take stock of various facets of risk management function and place their reports to Board Level Risk Management Committee. ALCO meets at least once in a month and CRMC, ISC & ORMC meet at least once in a quarter. Depending on requirement, ALCO meets at shorter frequencies. Integrated Risk Management Department is responsible for overall identification, measurement, monitoring and control of various types of risks faced by the Bank in its operations and compliance of risk management guidelines and policies issued by Regulator / Board. IRMD has three divisions; Credit Risk Division, Market Risk Division and Operational Risk Division. Division Heads report to the Head-Risk & Chief Risk Officer who reports directly to the Managing Director & CEO.

TABLE DF – 3: CREDIT RISK: GENERAL DISCLOSURES 1. Qualitative disclosures Definitions of past due and impaired (for accounting purposes): 1. Non-Performing Assets An asset including a leased asset becomes non-performing when it ceases to generate income for the bank. A non-performing asset (NPA) is a loan or an advance where a. Interest and/ or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan. b. The account remains ‘Out of order’ as indicated in paragraph 2 below, in respect of an Overdraft / Cash Credit (OD/CC). c. The bill remains overdue for a period of more than 90 days in case of bills purchased and discounted. d. The instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops. e. The instalment of principal or interest thereon remains overdue for one crop season for long duration crops

200 Annual Report 2019-20

2. ‘Out of Order’ status An account is treated as ‘Out of Order’ if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts are treated as Out of order.

3. ‘Overdue’ Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank. 4. Special Mention Accounts As prescribed by RBI, the Bank is required to identify incipient stress in the account by creating a Sub Asset category named as ‘Special Mention Accounts’ (SMA). It is considered as a corrective action plan to arrest slippages of standard assets to NPA. Accordingly, Bank is identifying three sub categories under SMA as below:

Basis for classification - Principal or interest payment or any other amount wholly or partly SMA Sub-categories overdue between SMA-0 1 - 30 days SMA-1 31 - 60 days SMA-2 61 - 90 days In the case of revolving credit facilities like cash credit, the SMA sub-categories will be as follows

Basis for classification – Outstanding balance remains con-tinuously in excess of the sanc- SMA Sub-categories tioned limit or drawing power, whichever is lower, for a period of: SMA-1 31- 60 days SMA-2 61 – 90 days

Credit Risk a. Inability or unwillingness of the counterparty to pay interest, repay principal or otherwise to fulfil their contractual obligations under loan agreements or other credit facilities. b. Downgrading of counterparties whose credit instruments, the Bank may be holding, causing the value of those assets to fall. c. Settlement Risk (possibility that the Bank may pay counterparty and fail to receive the corresponding settlement in return). RBI vide its notification dated 18/04/2017 directed Banks to identify stressed sectors in the economy through periodic review and to make additional provision for standard advances to stressed sectors. Accordingly, Bank has identified Telecom, Power sector (Thermal & Renewable/ Non - Conventional) and Roads – Infrastructure as stressed sectors and standard asset provision at higher rates are made for low rated exposures in the sector. Discussion of the Bank’s Credit Risk Management Policy: Bank has put in place a detailed Credit Risk Management Policy. The objective of this policy is to create a transparent framework for identification, assessment and effective management of credit risk in all operations of the Bank and to secure organizational strength and stability in the long run. The policy aims at contributing to the Bank’s profitability by efficient and profitable utilization of a prudent proportion of the Bank’s resources and maintaining a reasonably balanced portfolio of acceptable risk quality through diversification of credit risks. The policy also envisages optimizing returns with satisfactory spread over funding cost and overheads. The policy deals with the structure, framework and processes for effective management of inherent credit risk

201 Basel III Disclosures Quantitative disclosures

Fund based exposure* Non-fund based exposure** Total Total gross credit risk exposures (after accounting offsets in accordance with the applicable accounting regime and without taking into account the effects of credit risk mitiga- tion techniques) 1439817.85 113809.79 1553627.64 Geographic distribution of exposures (same basis as adopted for segment reporting adopted for compliance with AS 17) Overseas 18988.09 0.00 18988.09 Domestic 1420829.76 113809.79 1534639.55 *Fund based exposures include all type of funded facilities including the unavailed limits and inter-bank exposures. However, exposures to Food Credit, RIDF related exposures, deposits to SIDBI, NABARD and NHB for priority sector lending purposes are excluded. **Non fund based exposures include guarantees, Letters of Credit and Co-Acceptances of bills/ deferred payment guarantees.

INDUSTRY TYPE DISTRIBUTION OF EXPOSURES (With industry break up on same lines as prescribed for DSB returns) (Amount in ` Mn.) Total Credit Total Credit Total Credit % to Gross Exposure Funded Exposure Exposure Industry Name Credit Non-Funded (Funded and Exposure Non-Funded) A. Mining and Quarrying 6134.42 97.00 6231.43 0.40% A.1 Coal 74.51 0.20 74.71 0.00% A.2 Others 6059.92 96.80 6156.72 0.40% B. Food Processing 17136.18 5595.76 22731.94 1.46% B.1 Sugar 4005.03 3.68 4008.71 0.26% B.2 Edible Oils and Vanaspati 1421.91 4216.00 5637.91 0.36% B.3 Tea 544.89 18.88 563.77 0.04% B.4 Coffee 355.56 3.69 359.24 0.02% B.5 Others 10808.79 1353.52 12162.31 0.78% C. Beverages (excluding Tea & Coffee) and Tobacco 4192.21 8.34 4200.55 0.27% C.1 Tobacco and tobacco products 221.26 0.00 221.26 0.01% C.2 Others 3970.95 8.34 3979.29 0.26% D. Textiles 27933.93 1696.06 29629.99 1.91% D.1 Cotton 9141.95 794.83 9936.78 0.64% D.2 Jute 184.00 122.55 306.56 0.02% D.3 Man-made 0.00 0.00 0.00 0.00% D.4 Others 18607.99 778.68 19386.66 1.25% Out of D (i.e., Total Textiles) to Spinning Mills 3809.71 7.52 3817.23 0.25% E. Leather and Leather products 1330.64 91.36 1421.99 0.09% F. Wood and Wood Products 4716.28 612.98 5329.26 0.34% G. Paper and Paper Products 8450.94 487.30 8938.23 0.58% H. Petroleum (non-infra), Coal Products (non-mining) and Nuclear Fuels 11914.82 3734.09 15648.91 1.01% I. Chemicals and Chemical Products (Dyes, Paints, etc.) 33502.08 2357.62 35859.71 2.31% I.1 Fertilizers 9026.64 40.41 9067.05 0.58%

202 Annual Report 2019-20

I.2 Drugs and Pharmaceuticals 8342.03 490.85 8832.88 0.57% I.3 Petro-chemicals (excluding under Infrastructure) 0.00 0.00 0.00 0.00% I.4 Others 16133.41 1826.36 17959.78 1.16% J. Rubber, Plastic and their Products 16446.25 4993.38 21439.62 1.38% K. Glass & Glassware 3936.07 309.28 4245.35 0.27% L. Cement and Cement Products 10253.40 108.25 10361.65 0.67% M. Basic Metal and Metal Products 25425.85 4522.90 29948.75 1.93% M.1 Iron and Steel 15702.44 2329.50 18031.94 1.16% M.2 Other Metal and Metal Products 9723.41 2193.41 11916.81 0.77% N. All Engineering 22905.90 9139.93 32045.84 2.06% N.1 Electronics 1460.75 902.32 2363.07 0.15% N.2 Others 21445.15 8237.62 29682.77 1.91% O. Vehicles, Vehicle Parts and Transport Equipments 22165.16 3405.41 25570.57 1.65% P. Gems and Jewellery 6809.88 44.61 6854.49 0.44% Q. Construction 24103.22 17030.17 41133.39 2.65% R. Infrastructure 118731.71 19616.76 138348.48 8.90%* R.a Transport (a.1 to a.6) 9900.89 446.10 10346.99 0.67% R.a.1 Roads and Bridges 2291.34 40.04 2331.38 0.15% R.a.2 Ports 291.42 27.29 318.72 0.02% R.a.3 Inland Waterways 0.00 0.00 0.00 0.00% R.a.4 Airport 7317.83 346.16 7664.00 0.49% R.a.5 Railway Track, tunnels, viaducts, bridges 0.00 0.00 0.00 0.00% R.a.6 Urban Public Transport (except rolling stock in case of urban road transport) 0.00 32.60 32.60 0.00% R.a.7 Shipyards 0.00 0.00 0.00 0.00% R.a.8 Logistics Infrastructure 0.29 0.00 0.29 0.00% R.b. Energy (b.1 to b.6) 45048.05 2424.46 47472.51 3.06% R.b.1 Electricity Generation 30467.18 973.40 31440.58 2.02% R.b.1.1 Central Govt PSUs 20561.18 0.00 20561.18 1.32% R.b.1.2 State Govt PSUs (incl. SEBs) 0.00 0.00 0.00 0.00% R.b.1.3 Private Sector 9906.01 973.40 10879.40 0.70% R.b.2 Electricity Transmission 9000.00 1019.33 10019.33 0.64% R.b.2.1 Central Govt PSUs 7000.00 0.00 7000.00 0.45% R.b.2.2 State Govt PSUs (incl. SEBs) 0.00 0.00 0.00 0.00% R.b.2.3 Private Sector 2000.00 1019.33 3019.33 0.19% R.b.3 Electricity Distribution 5580.87 431.73 6012.60 0.39% R.b.3.1 Central Govt PSUs 0.00 0.00 0.00 0.00% R.b.3.2 State Govt PSUs (incl. SEBs) 4847.31 0.00 4847.31 0.31% R.b.3.3 Private Sector 733.56 431.73 1165.29 0.08% R.b.4 Oil Pipelines 0.00 0.00 0.00 0.00% R.b.5 Oil/Gas/Liquefied Natural Gas (LNG) storage facility 0.00 0.00 0.00 0.00% R.b.6 Gas Pipelines 0.00 0.00 0.00 0.00%

203 Basel III Disclosures R.c. Water and Sanitation (c.1 to c.7) 30.39 18.97 49.36 0.00% R.c.1 Solid Waste Management 7.90 18.97 26.87 0.00% R.c.2 Water supply pipelines 14.54 0.00 14.54 0.00% R.c.3 Water treatment plants 0.00 0.00 0.00 0.00% R.c.4 Sewage collection, treatment and disposal system 0.00 0.00 0.00 0.00% R.c.5 Irrigation (dams, channels, embankments etc) 7.95 0.00 7.95 0.00% R.c.6 Storm Water Drainage System 0.00 0.00 0.00 0.00% R.c.7 Slurry Pipelines 0.00 0.00 0.00 0.00% R.d. Communication (d.1 to d.3) 14780.48 138.05 14918.53 0.96% R.d.1 Telecommunication (Fixed network) 79.16 32.49 111.64 0.01% R.d.2 Telecommunication towers 674.11 104.81 778.92 0.05% R.d.3 Telecommunication and Telecom Services 14027.21 0.75 14027.96 0.90% R.e. Social and Commercial Infrastructure (e.1 to e.9) 15054.72 666.03 15720.75 1.01% R.e.1 Education Institutions (capital stock) 8112.71 146.47 8259.18 0.53% R.e.2 Hospitals (capital stock) 3047.04 483.81 3530.85 0.23% R.e.3 Three-star or higher category classified hotels located outside cities with population of more than 1 million 3888.47 35.75 3924.22 0.25% R.e.4 Common infrastructure for industrial parks, SEZ, tourism facilities and agriculture markets 0.00 0.00 0.00 0.00% R.e.5 Fertilizer (Capital investment) 0.00 0.00 0.00 0.00% R.e.6 Post harvest storage infrastructure for agriculture and horticultural produce including cold storage 0.00 0.00 0.00 0.00% R.e.7 Terminal markets 0.00 0.00 0.00 0.00% R.e.8 Soil-testing laboratories 0.00 0.00 0.00 0.00% R.e.9 Cold Chain 0.00 0.00 0.00 0.00% R.e.10 Sports Infrastructure 5.81 0.00 5.81 0.00% R.e.11 Tourism - Ropeways and Cable Cars 0.70 0.00 0.70 0.00% R.e.12 Affordable Housing 0.00 0.00 0.00 0.00% R.f. Others, if any, please specify 33917.18 15923.16 49840.34 3.21% Other Infra 0.00 0.00 0.00 0.00% S. Other Industries 10963.82 306.88 11270.70 0.73% All Industries (A to S) 377052.75 74158.09 451210.84 29.04% * Total exposure to Infrastructure exceeds 5% of gross credit exposure

RESIDUAL CONTRACTUAL MATURITY BREAKDOWN OF ASSETS (maturity bands as used in ALM returns areused) (Amount in ` Mn.) Cash Balances Balances with Investments Advances Fixed Other Total with RBI other banks assets assets Day 1 13736.89 4038.51 52084.20 89540.32 9850.83 0.00 3591.46 172842.21 2 – 7 days 0.00 365.64 2861.97 1209.78 7072.96 0.00 229.58 11739.93 8-14 days 0.00 392.96 4853.25 5032.81 2017.69 0.00 0.00 12296.71 15-30 days 0.00 1031.72 145.00 2773.50 12022.87 0.00 905.01 16878.10 31 days & up to 2 months 0.00 1686.74 232.50 6640.98 18355.86 0.00 71.72 26987.80 Over 2 months & up to 3 months 0.00 1839.33 949.15 14004.95 47432.60 0.00 90.19 64316.22

204 Annual Report 2019-20

Over 3 months & up to 6 months 0.00 5659.79 1858.60 3630.84 131518.50 0.00 3371.69 146039.42 Over 6 months & up to 1 year 0.00 9500.47 983.65 9313.31 153680.52 0.00 26573.74 200051.69 Over 1 year & up to 3 years 0.00 21578.44 25.91 29317.68 510357.23 0.00 38708.46 599987.72 Over 3 years & up to 5 years 0.00 1289.57 2.50 30414.05 146046.82 0.00 11802.32 189555.26 Over 5 years & upto 7 years 0.00 325.15 0.00 52645.07 78665.73 0.00 7880.75 139516.70 Over 7 years & up to 10 years 0.00 301.05 0.00 90042.70 53913.99 0.00 201.41 144459.15 Over 10 year & up to 15 years 0.00 2.71 0.00 11631.95 40065.84 0.00 0.00 51700.50 Over 15 years 0.00 0.11 0.00 12728.85 11677.71 4799.85 802.54 30009.06 Total 13736.89 48012.19 63996.73 358926.79 1222679.15 4799.85 94228.87 1806380.47

ASSET QUALITY

Advances (Amount in ` Mn.) Amount of Non-Performing Assets (Gross) 35,308.31 Substandard 11,820.34 Doubtful 1 8,988.98 Doubtful 2 8,041.67 Doubtful 3 3,603.41 Loss 2,853.91 Net NPA 16,071.70 NPA ratios Gross NPAs to gross advances (%) 2.84% Net NPAs to net advances (%) 1.31% Movement of NPAs (Gross) Opening balance (balance as at the end of previous Fiscal) 32,606.76 Additions during the period 19,188.14 Reductions 16,486.59 Closing balance 35,308.31

Movement of provisions (Amount in ` Mn.) Specific Provision General Provision Opening balance (balance as at the end of previous Fiscal) 15,371.38 691.80 Provisions made during the period 12,804.47 - Write off 7,341.87 - Write back of excess provisions 2,673.09 - Any other adjustments, including transfers between provisions - - Closing balance 18,160.89 691.80

205 Basel III Disclosures Details of write offs and recoveries that have been booked directly to the income statement (Amount in ` Mn.) Write offs that have been booked directly to the income statement 524.08 Recoveries that have been booked directly to the income statement 1,805.43

Investments (Amount in ` Mn.) Amount of Non-Performing Investments (Gross) 964.61 Amount of provisions held for Non-Performing Investments 961.92 Movement of provisions for depreciation on investments Opening balance (balance as at the end of previous Fiscal) 3,089.85 Provisions made during the period 596.08 Write-off (63.35) Write-back of excess provisions (151.87) Closing balance 3,470.71

Major Industry breakup of NPA (Amount in ` Mn.) Industry Gross NPA Specific Provision NPA in Top 5 industries 4533.41 2505.28

Geography wise Distribution of NPA and Provision (Amount in ` Mn.)

Geography Gross NPA Specific Provision General Provision Domestic 33,416.69 17,687.99 691.80 Overseas 1,891.62 472.90 - Total 35,308.31 18,160.89 691.80

TABLE DF – 4: DISCLOSURES FOR PORTFOLIOS SUBJECT TO THE STANDARDIZED APPROACH 1. Qualitative disclosures For portfolios under the Standardized Approach: Names of credit rating agencies used, plus reasons for any changes: Bank has approved all the seven External Credit Rating Agencies accredited by RBI for the purpose of credit risk rating of domestic borrower accounts that forms the basis for determining risk weights under Standardized Approach. External Credit Rating Agencies approved are: 1. CRISIL 2. CARE 3. India Ratings and Research Private Limited (Formerly FITCH INDIA) 4. ICRA 5. Brickwork Ratings India Pvt. Ltd (BRICKWORK) 6. SMERA Ratings Ltd 7. INFOMERICS Valuation and Rating Pvt. Ltd (INFOMERICS) Bank is also using the ratings of the following international credit rating agencies for assigning risk weights to claims for capital adequacy purposes where the exposure can be specified as international exposure: 1. Fitch; 2. Moody’s and 3. Standard & Poor’s

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With respect to external credit rating, Bank is using long term ratings for risk weighting all long term claims and unrated short term claims on the same counterparty. However, short term rating of a counterparty is used only to assign risk weight to all short term claims of the obligor and not to risk weight unrated long term claims on the same counterparty. Types of exposure for which each agency is used: 1. Rating by the agencies is used for both fund based and non-fund based exposures. 2. Short Term Rating given by the agencies is used for exposure with contractual maturity of less than or equal to one year (except Cash Credit, Overdrafts and other Revolving Credits). 3. Long Term Rating given by the agencies is used for exposures with contractual maturity of above one year and also for Cash Credit, Overdrafts and other Revolving Credits. 4. Rating assigned to one particular entity within a corporate group is not used to risk weight other entities within the same group. The rating reviewed, at least once during past 15 months will only be considered for risk weighting purposes. Description of the process used to transfer public issue ratings into comparable assets in the Banking Book: The ratings available in public domain are mapped according to mapping process as envisaged in RBI guidelines on the subject. Issue Specific Ratings (Bank’s own exposures or other issuance of debt by the same borrower constituent/ counterparty) or Issuer Ratings (borrower constituent/ counterparty) are applied to unrated exposures of the same borrower constituent/ counterparty subject to the following: 1. Issue specific ratings are used where the unrated claim of the Bank ranks pari passu or senior to the rated issue / debt. 2. Wherever issuer rating or issue specific ratings are used to risk weight unrated claims, such ratings are extended to entire amount of claim on the same counterparty. 3. Ratings used for risk weighting purposes are confirmed from the websites of the rating agencies concerned.

2. Quantitative disclosures Risk weight wise details of exposures (rated and unrated) after risk Risk Weight (Amount in `Mn.) mitigation subject to the Standardized Approach Below 100 % 11,95,093.27 (Credit equivalent amount of all exposures subjected to 100 % 3,83,381.21 Standardized Approach, after risk mitigation) More than 100 % 98,340.85 Deducted 2,592.00* Total 16,76,815.33 *Investment in subsidiary

TABLE DF – 5: CREDIT RISK MITIGATION: DISCLOSURES FOR STANDARDIZED APPROACHES 1. Qualitative disclosures Disclosures on credit risk mitigation methodology adopted by the Bank that are recognized under the Standardized Approach for reducing capital requirements for credit risk 1.1 Policies and processes for, and an indication of the extent to which the bank makes use of, on- and off-balance sheet netting Bank has no practice of on-balance sheet netting for credit risk mitigation. Eligible collaterals taken for the exposures are separately earmarked and the exposures are expressed without netting. 1.2 Policies and processes for collateral valuation and management Bank has put in place Board approved policy on Credit Risk Management in which Collateral Management and credit risk mitigation techniques used by the Bank for both Risk management and capital computation purposes are separately included. The Loan policy of the Bank covers various aspects of valuation of collaterals. 1.3 Description of the main types of collateral taken by the Bank Collaterals used by Bank as risk mitigants for capital computation under Standardized Approach comprise eligible financial collaterals namely: 1. Cash margin and fixed deposits of the counterparty with the Bank. 2. Gold jewellery of purity 91.6% and above, the value of which is notionally converted to value of gold with 99.99% purity. 3. Securities issued by Central and State Governments.

207 Basel III Disclosures 4. Kisan Vikas Patra and National Savings Certificates. 5. Life Insurance Policies with a declared surrender value of an Insurance company regulated by the insurance sector regula- tor. 6. Debt securities rated by a chosen Credit Rating Agency in respect of which the bank is sufficiently confident of market liquidity of the security and where these securities are either: a. Attracting 100% or lesser risk weight i.e. rated at least BBB (-) when issued by Public sector entities and other entities including banks and Primary Dealers or b. Attracting 100% or lesser risk weight i.e. rated at least A3 for short term debt instruments 7. Debt securities not rated by a chosen Credit Rating Agency in respect of which the bank is sufficiently confident of market liquidity of the security and where these securities are: a. Issued by the bank b. Listed on a recognized exchange c. Classified as senior debt d. All rated issues of the same seniority by the issuing Bank are rated at least BBB (-) or A3 by a chosen Credit Rating Agency e. The bank has no information to suggest that the issue justifies a rating below BBB (-) or A3 by a chosen Credit Rating Agency f. Bank is sufficiently confident about the market liquidity of the security. 8. Units of Mutual Funds regulated by the securities regulator of the jurisdiction of the Bank’s operation and mutual funds where a. A price for the units is publicly quoted daily i.e. where the daily NAV is available in public domain b. Mutual fund is limited to investing in the permitted instruments listed. Bank has no practice of monitoring / controlling exposures on a net basis, though Bank is able to determine at any time loans/ad- vances and deposits of the same counterparty. Netting benefit, even if available, is not utilized in capital computation under Basel III norms. 1.4 Main types of guarantor counterparty and their creditworthiness Bank considers guarantees, which are direct, explicit, irrevocable and unconditional for Credit risk mitigation. Use of such guarantees for capital computation is strictly as per RBI guidelines on the subject. Main types of guarantor counterparties are a. Sovereigns (Central / State Governments) b. Sovereign entities like ECGC, CGFTSI c. Banks and Primary Dealers with a lower risk weight than the counter party Other entities rated AA (-) or better. This would include guarantee cover provided by parent, subsidiary and affiliate companies when they have lower risk weight than the obligor. The rating of the guarantor should be an entity rating which has factored in all the liabilities and commitments (includ- ing guarantees) of the entity. 1.5 Information on market / credit risk concentrations within the mitigation taken by the Bank Majority of financial collaterals held by the Bank are by way of own Deposits, Government Securities, Gold, Life Insurance Policies and other approved securities like NSC, KVP etc. Bank does not envisage market liquidity risk in respect of financial collaterals except in Gold and Units of Mutual Funds. Bank does not have exposure collateralized through units of eligible Mutual Funds. With respect to gold loans, each and every exposure is reviewed/ renewed/closed within a maximum period of 12 months. Bank could successfully manage the risks posed by sudden reduction in gold price in the past. Measures warranted by the situation were timely taken. Bank has not experienced any significant Market liquidity risk in Gold. Overall, financial collaterals do not have any issue in realization. Concentration on account of collateral is also relevant in the case of Land & building. Except in the case of Housing loan to individuals and loans against property, land and building is considered only as an additional security. As land and building is not recognized as eligible collateral under Standardized Approach, its value is not reduced from the amount of exposure in the process of computation of capital charge. It is used only in the case of Housing loan to individuals and non-performing assets to determine the appropriate risk weight. As such, there is no concentration risk on account of nature of collaterals.

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2. Quantitative Disclosures (Amount in ` Mn.) 2.1 Credit risk exposure covered by eligible financial collaterals Type of exposure Credit equivalent of Value of eligible Net amount of gross exposure financial collateral credit exposure after haircuts A Funded Credit Exposure 148588.28 137885.17 10703.11 B Non-funded Credit exposure 33322.10 18439.53 14882.56 C Securitization exposures – On balance sheet - - - D Securitization exposures – Off balance sheet - - - TOTAL 181910.38 156324.70 25585.67 2.2 Credit risk exposure covered by guarantees Type of exposure Credit equivalent of Amount of gross exposure guarantee (Credit equivalent) A Funded Credit Exposure 12698.95 12623.26 B Non-funded Credit exposure 116.83 23.4 C Securitization exposures – on balance sheet - - D Securitization exposures – off balance sheet - - TOTAL 12815.78 12646.66

TABLE DF – 6: SECURITISATION: DISCLOSURES FOR STANDARDIZED APPROACH 1. Qualitative disclosures 1.1 General disclosures on securitization exposures of the Bank A Objectives of securitization activities of the Bank (including the extent to which these activities transfer credit risk of the underlying securitized exposures away from the Bank to other entities and nature of other risks inherent in securitized assets) Bank’s securitisation exposure is limited to investments in securitisation instruments (Pass Through Certificates) and purchase of asset portfolio by way of Direct assignment route. The bank invests/ purchase securitised assets with the objective of book building and yield optimisation. B Role of Bank in securitization processes (originator / investor/ service provider/ facility provider etc.) and extent of involvement in each activity. As an Investor: The Bank invests in Pass Through Certificates backed by financial assets originated by third parties. Such investments are held in its Trading book As an Assignee: The Bank also purchases Asset portfolio by way of Direct assignment from Banks / NBFCs. C Processes in place to monitor changes in the credit and market risk of securitization exposures The major risks involved in Loan assignment transactions are: Credit Risk: The risk of default on a debt that may arise from an obligor failing to make required payments. Co-mingling risks: Risks arising on account of co-mingling of funds belonging to the assignee with that of originator. This occurs when there is a time lag between collection of loan instalments by the originator and remittance to the assignee. Regulatory and legal risks: Risks arising due to non-compliance of regulatory requirements resulting in keeping higher risk weight/ capital charge for assignment transactions. Risk of non-compliance of regulatory rules. Prepayment risk: Prepayment risk arises on account of prepayment of dues by obligors in the assigned pool either in part or full. Bank is constantly monitoring the changes in Credit and Market risk profile of securitization instruments held in the radingT book and Banking book. In case of portfolio purchased through Assignment route, monitoring is done on an individual account level. D Bank’s policy governing the use of credit risk mitigation to mitigate the risks retained through securitization exposures The Bank has not originated any securitization exposures. In the case of purchase by way of Direct assignment route; bank has not used any Credit risk mitigants.

209 Basel III Disclosures 1.2 Accounting policies for securitization activities A Treatment of transaction (whether as sales or financings) NA B Methods and key assumptions (including inputs) applied in valuing positions retained or purchased Income from investments in Pass Through Certificates is recognized on accrual basis. Income recognition is subjected to prudential norms stipulated by Reserve Bank of India in this regard. The loans purchased through Direct assignment route are classified as advances. The loans purchased will be carried at acquisition cost. C Changes in methods and key assumptions from the previous period and impact of the changes No change is effected in methods and key assumptions used for valuation of investment in securitized instruments (Pass Through Certificates). D Policies for recognizing liabilities on the balance sheet for arrangements that could require the bank to provide financial support for securitized assets. Bank has not entered into any arrangement to provide financial support for securitized assets. 1.3 In the Banking Book, names of ECAIs used for securitizations and the types of securitization exposures for which each agency is used. For computation of Capital requirements for loans purchased by way of Direct assignment, Bank has used the Credit rating issued by eligible ECAIs.

2. Quantitative disclosures (Amount in ` Mn) 2.1 In the Banking Book A Total amount of exposures securitized by the Bank Nil B For exposures securitized, losses recognized by the Bank during the current period (exposure type wise break Nil up) C Amount of assets intended to be securitized within a year Nil D Of (C) above, amount of assets originated within a year before securitization Nil E Securitization exposures (by exposure type) and unrecognized gain or losses on sale thereon Type of exposure Amount securitized Unrecognized gain / loss Nil Nil Nil F Aggregate amount of on-balance sheet securitization exposures Commercial Vehicle/ MSME 193.22 retained or purchased by the Bank (exposure type wise breakup) Housing 11060.61 Loan against property 8071.92 Commercial TL / LRD - Agri / Allied activities - Total 19325.76 G Aggregate amount of off-balance sheet securitization exposures Nil (exposure type wise breakup) H Aggregate amount of securitization exposures retained or purchased and associated capital charges (Direct assignment of Cash flows)

Risk Weight Bands Exposure Type Exposure Capital Charge Housing Loans 11011.29 476.47 Mixed Assets* 163.66 9.81 Less than 100% Loan against property 567.94 37.55 Agri / Allied activities 0.00 0.00

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Agri / Allied activities 0.00 0.00 Commercial TL / LRD 29.56 2.10 At 100% Loan against property 7495.29 671.97 Housing Loans 49.33 3.78 Loan against property 8.69 1.00 More than 100% Mixed Assets* 0.00 0.00 *includes Commercial Vehicle Loans and Micro &Small Business Loans I Total amount of deductions from capital on account of securitization exposures Nil Deducted entirely from Tier I capital-underlying exposure type wise break up Nil Credit enhancing interest only strips (I/O) deducted from total capital – underlying exposure type wise break up Nil Other exposures deducted from total capital – underlying exposure type wise break up Nil 2.2 In the Trading Book A Aggregate amount of exposures securitized by the Bank for which the Bank has retained some exposures, which is subject to Market Risk approach (exposure type wise details) Type of exposure Gross Amount Amount retained Nil Nil Nil B Aggregate amount of on-balance sheet securitization exposures retained or purchased by the Bank (exposure type wise breakup) Type of exposure (Amount in `Mn.) Investment in Pass through Certificates 3179.37 C Aggregate amount of off-balance sheet securitization exposures (exposure type wise breakup) Nil D Securitization exposures retained / purchased subject to Comprehensive Risk Measure for specific risk -- E Securitization exposures retained / purchased subject to specific risk capital charge (risk weight band wise distribution) Type of Exposure Capital charge as % to Exposure (Amount in ` Mn.) exposure Investment in Pass through Certificates 4.00% 3179.37 F Aggregate amount of capital requirements for securitization exposures (risk weight band wise distribution) Type of exposure Capital charge as % to Capital charge (Amount in ` exposure Mn.) Investment in Pass through Certificates 4.00% 127.96 G Total amount of deductions from capital on account of Nil securitization exposures Nil Deducted entirely from Tier I capital – underlying exposure type wise break up Nil Credit enhancing interest only strips (I/Os) deducted from total capital – underlying exposure type wise break Nil up Other exposures deducted from total capital – underlying exposure type wise break up Nil

211 Basel III Disclosures TABLE DF – 7: MARKET RISK IN TRADING BOOK 1. Qualitative disclosures 1.1 Approach used for computation of capital charge for market risk Bank has adopted Standardized Duration Approach as prescribed by RBI for computation of capital charge for general market risk and is fully compliant with such RBI guidelines. Bank uses VaR as an indicative tool for measuring Forex risk and Equity Price risk. Standardized Duration Approach is applied for computation of General Market Risk for • Securities under HFT category • Securities under AFS category • Open gold position limits • Open foreign exchange position limits • Trading positions in derivatives • Derivatives entered into for hedging trading book exposures Specific capital charge for market risk is computed based on risk weights prescribed by the Regulator. 1.2 Portfolios covered in the process of computation of capital charge Investment portfolio under AFS and HFT, Gold and Forex open positions and Derivatives entered for trading and hedging.

(Amount in ` Mn.) 2. Quantitative disclosures 2.1 Minimum capital requirements for market risk as per Standardized Duration Approach 5563.95 Interest rate risk 1979.78 Foreign exchange risk (including gold) 253.13 Equity position risk 3331.04

TABLE DF – 8: OPERATIONAL RISK 1. Qualitative disclosures 1.1 Approach used for computation of capital charge for operational risk (and for which the Bank is qualified) Bank is following the Basic Indicator Approach for computation of capital charge for operational risk. Bank has initiated steps for migrating to the advanced approaches in due course.

TABLE DF – 9: INTEREST RATE RISK IN BANKING BOOK (IRRBB) 1. Qualitative disclosures The impact of adverse movements in interest rates on financials is referred to as interest rate risk. orF banking book, interest rate risk arises through mismatches in re-pricing of interest rate sensitive assets (RSA), rate sensitive liabilities (RSL) and rate sensitive off- balance sheet items. As interest rate risk can impact both Net Interest Income (NII) and Economic value of capital, it is assessed and managed from both earnings and economic value perspective. a) Earnings perspective: Analyses the impact on Bank’s Net Interest Income (NII) in the short term through traditional gap analysis. b) Economic perspective: Analyses the impact on the Net-worth of bank due to re-pricing of assets, liabilities and off-balance sheet items through duration gap analysis. The Bank classifies an asset/liability as rate sensitive if: • Within the time interval under consideration, there is a cash flow • The interest rate resets / reprices contractually during the interval • RBI changes the interest rates in cases where interest rates are administered. Rate sensitive assets and liabilities are grouped under various time buckets prescribed by RBI for interest rate sensitivity statement and bucket wise modified duration is computed using the suggested common maturity, coupon and yield parameters. Core portion of non-maturing deposits (Current Account and Saving Account) is bucketed in “over 1 year – 3 year” based on the behavioural analysis. Non-rate sensitive liabilities and assets primarily comprise of capital, reserves and surplus, other liabilities, cash and balances with RBI, current account balances with banks, fixed assets and other assets. IRRBB is assessed on a monthly basis and monitored by ALCO, both under earnings and economic value perspectives.

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2. Quantitative disclosures - Impact of interest rate risk (Amount in ` Mn.) Total Book Banking Book 2.1 Earnings perspective (Traditional Gap Analysis) Earnings at Risk (EaR) – impact for one year due to Uniform 1% increase/ decrease in interest rate 243.69 8.96 2.2 Economic value perspective - Percentage and quantum of decrease in market value of equity on account of 1% uniform increase in interest rate 10205.88 8449.25 (Currency wise break up not provided as the turnover in other currencies is less than 5% of total turnover)

TABLE DF – 10: General Disclosure for Exposure Related to Counterparty Credit Risk Qualitative disclosures Bank has put in place Counterparty Credit Risk limits for banks as counterparty, based on internal rating of the counterparty bank and with the approval of the Board. Counterparty exposures for other entities are subject to comprehensive exposure ceilings fixed by the Board. Capital for Counterparty Credit Risk is assessed based on the Standardized Approach. Quantitative disclosures The Bank does not recognize bilateral netting (except for transactions through QCCP). The credit equivalent amounts of derivatives that are subjected to risk weighting are calculated as per the Current Exposure Method. The balance outstanding and the current exposure thereof (including QCCP) are as follows: (Amount in ` Mn.) Particulars Notional Amounts Current Exposure Foreign exchange contracts 217041.04 13589.26 Interest rate derivative contracts 32980.00 313.68 Total 250021.04 13902.94

TABLE DF-11: Composition of Capital (Amount in ` Mn.) Common Equity Tier 1 capital: instruments and reserves Ref No 1 Directly issued qualifying common share capital plus related stock surplus (share premium) 57159.32 a+d-m2 2 Retained earnings 27044.28 l+m-m1 3 Accumulated other comprehensive income (and other reserves) 61683.75 b+c+e+f+i+j+k 4 Directly issued capital subject to phase out fromCET1 (only applicable to non-joint stock compa- nies) 0.00 5 Common share capital issued by subsidiaries and held by third parties (amount allowed in group CET1) 0.00 6 Common Equity Tier 1 capital: before regulatory adjustments 145887.36 Common Equity Tier 1 capital: regulatory adjustments 7 Prudential valuation adjustments 0.00 8 Goodwill (net of related tax liability) 45.58 x1 9 Intangibles (net of related tax liability) 19.80 r+p 10 Deferred tax assets 0.00 11 Cash-flow hedge reserve 0.00 12 Shortfall of provisions to expected losses 0.00 13 Securitisation gain on sale 0.00 14 Gains and losses due to changes in own credit risk on fair valued liabilities 0.00 15 Defined-benefit pension fund net assets 0.00 16 Investments in own shares (if not already netted off paid-up capital on reported balance sheet) 0.00

213 Basel III Disclosures 17 Reciprocal cross-holdings in common equity 6.16 18 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) 0.00 19 Significant investments in the common stock of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions (amount above 10% threshold) 0.00 20 Mortgage servicing rights (amount above 10% threshold) 0.00 21 Deferred tax assets arising from temporary differences (amount above 10% threshold, net of related tax liability) 0.00 22 Amount exceeding the 15% threshold 0.00 23 of which: significant investments in the common stock of financial entities 24 of which: mortgage servicing rights 0.00 25 of which: deferred tax assets arising from temporary differences 0.00 26 National specific regulatory adjustments (26a+26b+26c+26d) 0.00 26 a of which: Investments in the equity capital of the unconsolidated insurance subsidiaries 0.00 26 b of which: Investments in the equity capital of unconsolidated non-financial subsidiaries 0.00 26 c of which: Shortfall in the equity capital of majority owned financial entities which have not been consolidated with the bank 0.00 26 d of which: Unamortised pension funds expenditures 0.00 27 Regulatory adjustments applied to Common Equity Tier 1 due to insufficient Additional Tier 1 and Tier 2 to cover deductions 0.00 28 Total regulatory adjustments to Common equity Tier 1 71.54 29 Common Equity Tier 1 capital (CET1) 145815.81 Additional Tier 1 capital: instruments 30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus (share pre- mium) (31+32) 0.00 31 of which: classified as equity under applicable accounting standards (Perpetual Non-Cumulative Preference Shares) 0.00 32 of which: classified as liabilities under applicable accounting standards (Perpetual debt Instru- ments) 0.00 33 Directly issued capital instruments subject to phase out from Additional Tier 1 0.00 34 Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued by subsidiar- ies and held by third parties (amount allowed in group AT1) 0.00 35 of which: instruments issued by subsidiaries subject to phase out 0.00 36 Additional Tier 1 capital before regulatory adjustments 0.00 Additional Tier 1 capital: regulatory adjustments 37 Investments in own Additional Tier 1 instruments 0.00 38 Reciprocal cross-holdings in Additional Tier 1 instruments 0.00 39 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above 10% threshold) 0.00 40 Significant investments in the capital of banking, financial and insurance entities that are out- side the scope of regulatory consolidation (net of eligible short positions) 0.00 41 National specific regulatory adjustments (41a+41b) 0.00 41 a of which: Investments in the Additional Tier 1 capital of unconsolidated insurance subsidiaries 0.00

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41 b of which: Shortfall in the Additional Tier 1 capital of majority owned financial entities which have not been consolidated with the bank 0.00 42 Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deduc- tions 0.00 43 Total regulatory adjustments to Additional Tier 1 capital 0.00 44 Additional Tier 1 capital (AT1) 0.00 45 Tier 1 capital (T1 = CET1 + AT1) (29 + 44) 145815.81 Tier 2 capital: instruments and provisions 46 Directly issued qualifying Tier 2 instruments plus related stock surplus 3000.00 n 47 Directly issued capital instruments subject to phase out from Tier 2 0.00 48 Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34) issued by subsidiaries and held by third parties (amount allowed in group Tier 2) 0.00 49 of which: instruments issued by subsidiaries subject to phase out 0.00 50 Provisions 8324.79 ci+h+o+g 51 Tier 2 capital before regulatory adjustments 11324.79 Tier 2 Capital: Regulatory adjustments 52 Investments in own Tier 2 instruments 0.00 53 Reciprocal cross-holdings in Tier 2 instruments 0.00 54 Investments in the capital of banking, financial and insurance entities that are outside the scope of regulatory consolidation, net of eligible short positions, where the bank does not own more than 10% of the issued common share capital of the entity (amount above the 10% threshold) 0.00 55 Significant investments in the capital banking, financial and insurance entities that are outside the scope of regulatory consolidation (net of eligible short positions) 0.00 56 National specific regulatory adjustments (56a+56b) 0.00 56 a of which: Investments in the Tier 2 capital of unconsolidated insurance subsidiaries 0.00 56 b of which: Shortfall in the Tier 2 capital of majority owned financial entities which have not been consolidated with the bank 0.00 57 Total regulatory adjustments to Tier 2 capital 0.00 58 Tier 2 capital (T2) 11324.79 59 Total capital (TC = T1 + T2) (45 + 58) 157140.61 60 Total risk weighted assets (60a + 60b + 60c) 1073638.51 60 a of which: total credit risk weighted assets 924665.96 60 b of which: total market risk weighted assets 61821.67 60 c of which: total operational risk weighted assets 87150.87 Capital ratios 61 Common Equity Tier 1 (as a percentage of risk weighted assets) 13.58% 62 Tier 1 (as a percentage of risk weighted assets) 13.58% 63 Total capital (as a percentage of risk weighted assets) 14.63% 64 Institution specific buffer requirement (minimum CET1 requirement plus capital conservation plus countercyclical buffer requirements plus G-SIB buffer requirement, expressed as a percent- age of risk weighted assets) 7.37% 65 of which: capital conservation buffer requirement 1.87% 66 of which: bank specific countercyclical buffer requirement 0.00% 67 of which: G-SIB buffer requirement 0.00%

215 Basel III Disclosures 68 Common Equity Tier 1 available to meet buffers (as a percentage of risk weighted assets) 8.08% National minima (if different from Basel III) 69 National Common Equity Tier 1 minimum ratio (if different from Basel III minimum) 5.50% 70 National Tier 1 minimum ratio (if different from Basel III minimum) 7.00% 71 National total capital minimum ratio (if different from Basel III minimum) 9.00% Amounts below the thresholds for deduction (before risk weighting) 72 Non-significant investments in the capital of other financial entities 4925.31 73 Significant investments in the common stock of financial entities 2592.00 74 Mortgage servicing rights (net of related tax liability) 0.00 75 Deferred tax assets arising from temporary differences (net of related tax liability) 0.00 Applicable caps on the inclusion of provisions in Tier 2 76 Provisions eligible for inclusion in Tier 2 in respect of expo-sures subject to standardised ap- proach (prior to application of cap) 6405.05 77 Cap on inclusion of provisions in Tier 2 under standardised approach 11558.32 78 Provisions eligible for inclusion in Tier 2 in respect of expo-sures subject to internal ratings-based approach (prior to ap-plication of cap) NA 79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach NA Capital instruments subject to phase-out arrangements (only applicable between March 31, 2017 and March 31, 2022) 80 Current cap on CET1 instruments subject to phase out ar-rangements NA 81 Amount excluded from CET1 due to cap (excess over cap after redemptions and maturities) NA 82 Current cap on AT1 instruments subject to phase out ar-rangements NA 83 Amount excluded from AT1 due to cap (excess over cap af-ter redemptions and maturities) NA 84 Current cap on T2 instruments subject to phase out arrange-ments NA 85 Amount excluded from T2 due to cap (excess over cap after redemptions and maturities) NA

Note to the Template Row No. of Particular (Amount in ` Mn.) the template Deferred tax assets associated with accumulated losses 0.00 10 Deferred tax assets (excluding those associated with accumu-lated losses) net of Deferred tax liability 38.03 Total as indicated in row 10 38.03 If investments in insurance subsidiaries are not deducted fully from capital and instead considered 2080.00 under 10% threshold for deduction, the resultant increase in the capital of bank

19 of which: Increase in Common Equity Tier 1 capital 2080.00 of which: Increase in Additional Tier 1 capital 0.00 of which: Increase in Tier 2 capital 0.00 If investments in the equity capital of unconsolidated non-financial subsidiaries are not deducted and 0.00 hence, risk weighted then: 26 b (i) Increase in Common Equity Tier 1 capital 0.00 (ii) Increase in risk weighted assets 0.00 Eligible Provisions included in Tier 2 capital 6405.05 Investment Fluctuation Reserve inclused in Tier 2 capital 1897.20 50 Eligible Revaluation Reserves included in Tier 2 capital 22.54 Total of row 50 8324.79

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Table DF - 12 (Amount in ` Mn.) Balance sheet as in financial Balance sheet under regulatory Composition of Capital: Reconciliation Requirements Step 1 statements scope of consolidation 31-03-20 31-03-20 A Capital & Liabilities Paid-up Capital 3985.32 3985.32 Reserves & Surplus 141190.76 145674.84 i Minority Interest Total Capital 145176.08 149660.16 Deposits 1522900.85 1522519.07 of which: Deposits from banks 33708.94 33708.94 ii of which: Customer deposits 1489191.91 1488810.14 of which: Other deposits (pl. specify 0.00 0.00 Borrowings 103724.26 125277.20 of which: From RBI 19880.00 19880.00 of which: From banks 1162.00 20314.69 iii of which: From other institutions & agencies 56947.27 59347.52 of which: Others (pl. specify) 25734.99 25734.99 of which: Capital instruments 3000.00 3000.00 iv Other liabilities & provisions 34579.28 35703.76 Total Liabilities 1806380.47 1833160.20 B Assets Cash and balances with Reserve Bank of In-dia 61749.09 61825.43 i Balance with banks and money at call and short notice 63996.73 65747.65 Investments: 358926.79 356780.87 of which: Government securities 317607.10 317607.10 of which: Other approved securities 0.00 0.00 ii of which: Shares 5120.56 5058.02 of which: Debentures & Bonds 14573.45 14686.49 of which: Subsidiaries / Joint Ventures / Associ-ates 4622.00 2080.00 of which: Others (Commercial Papers, Mutual Funds etc.) 17003.68 17303.68 Loans and advances 1222679.15 1248494.99 iii of which: Loans and advances to banks 4308.10 4308.10 of which: Loans and advances to customers 1218371.04 1244186.89 iv Fixed assets 4799.85 5048.12 Other assets 94228.87 95263.13 v of which: Goodwill and intangible assets 0.00 19.80 of which: Deferred tax assets 0.00 38.03 vi Goodwill on consolidation vii Debit balance in Profit & Loss account Total Assets 1806380.47 1833160.20

217 Basel III Disclosures (Amount in ` Mn.) Balance sheet as in Balance sheet under Composition of Capital: Reconciliation Requirements Step 2 financial statements regulatory scope of consolidation Ref No. 31-03-2020 31-03-2020 A Capital & Liabilities i Paid-up Capital 3985.32 3985.32 of which: Amount eligible for CET1 3985.32 3985.32 a of which: Amount eligible for AT1 0.00 0.00 Reserves & Surplus 141190.76 145674.84 Of which 0.00 0.00 -Statutory Reserve 29833.98 29833.98 b -Revaluation Reserve (Part of CET1 at a discount of 55%) 0.00 0.00 c -Revaluation reserves at a discount of 55 per cent (T-2) (if not already shown under CET 1) 50.09 50.09 c i -Share premium 51621.92 53173.99 d -Capital Reserve 5046.00 5046.00 e -Revenue and other reserves 20170.49 20415.25 f -Investment fluctuation reserve 1897.20 1897.20 g -Investment reserve h -Foreign Currency Translation Reserve (at a discount of 75 per cent) 63.49 63.49 i -Special reserve 6039.90 6039.90 j -Contingency reserve 301.00 301.00 k - Balance in Profit and loss account at the end of the previous financial year 21742.84 22454.20 l - Current Financial year profit (After appropriations) 4423.83 4590.08 m - Dividend appropriation considered for regulatory purposes m1 Minority Interest 0.00 1809.64 m2 - Cash flow hedge reserve 0.00 Total Capital 145176.08 149660.16 ii Deposits 1522900.85 1522519.07 of which: Deposits from banks 33708.94 33708.94 of which: Customer deposits 1489191.91 1488810.14 of which: Other deposits (pl. specify) 0.00 0.00 iii Borrowings 103724.26 125277.20 of which: From RBI 19880.00 19880.00 of which: From banks 1162.00 20314.69 of which: From other institutions & agencies 56947.27 59347.52 of which: Others 25734.99 25734.99 of which: Capital instruments (Tier II bonds) 3000.00 3000.00 - Recognised under Tier II 3000.00 3000.00 n - Not Recognised under Tier II 0.00 0.00 iv Other liabilities & provisions 34579.28 35703.76

218 Annual Report 2019-20

of which: DTLs 111.46 66.21 of which: Standard asset provision included under Tier II 6261.10 6405.05 o Total Liabilities 1806380.47 1833160.20 B ASSETS Cash and balances with Reserve Bank of India 61749.09 61825.43 i Balance with banks and money at call and short notice 63996.73 65747.65 Investments 358926.79 356780.87 of which: Government securities 317607.10 317607.10 of which: Other approved securities 0.00 0.00 ii of which: Shares 5120.56 5058.02 of which: Good will 0.00 45.58 x1 of which: Debentures & Bonds 14573.45 14686.49 of which: Subsidiaries / Joint Ventures / Associates 4622.00 2080.00 of which: Others (Commercial Papers, Mutual Funds etc.) 17003.68 17303.68 iii Loans and advances 1222679.15 1248494.99 of which: Loans and advances to banks 4308.10 4308.10 of which: Loans and advances to cus-tomer 1218371.04 1244186.89 Fixed assets 4799.85 5048.12 iv of which Intangible assets 0.00 19.80 p v Other assets 94228.87 95263.13 a Other intangibles (excluding MSRs) 0.00 0.00 r b Deferred tax assets 0.00 38.03 vi c MAT credit entitlement 0.00 0.00 vi Goodwill on consolidation 0.00 0.00 Debit balance in Profit & Loss account 0.00 0.00

LEVERAGE RATIO (Consolidated) Leverage ratio is a non-risk based measure of exposure over capital. The leverage ratio is calibrated to act as a credible supplementary measure to the risk based capital requirements. The Basel III leverage ratio is defined as the ratio of capital measure (the numerator) to exposure measure (the denominator), expressed as a percentage. The capital measure used for the leverage ratio at any particular point in time is the Tier 1 capital measure applying at that time under the risk- based framework. Total exposure measure is the sum of the on-balance sheet exposures, derivative exposures, securities financing transaction (SFT) exposures and off- balance sheet (OBS) items.

Tier I Capital Leverage Ratio = Total Exposure

Summary comparison of accounting assets vs. leverage ratio exposure measure

Item (Amount in ` Mn.) 1 Total consolidated assets as per published financial statements 1806380.47 2 Adjustment for investments in banking, financial, insurance or commercial entities that are consoli- dated for accounting purpos-es but outside the scope of regulatory consolidation 26779.73 3 Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative account- ing framework but excluded from the leverage ratio exposure measure (less) 71.54

219 Basel III Disclosures 4 Adjustments for derivative financial instuments 14072.95 5 Adjustment for securities financing transactions (i.e. repos and similar secured lending) 34289.84 6 Adjustment for off-balance sheet items (i.e. conversion to credit equivalent amounts of off-balance sheet exposures) 130528.34 7 Other adjustments 3380.36 8 Leverage ratio exposure 2015360.13

Table DF 18 - Leverage ratio common disclosure template Item Leverage ratio framework On-balance sheet exposures (Amount in ` Mn.) 1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 1836540.55 2 (Asset amounts deducted in determining Basel III Tier 1 capi-tal) 71.54 3 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2) 1836469.01 Derivative exposures 4 Replacement cost associated with all derivatives transactions (i.e. net of eligible cash variation margin) 2846.77 5 Add-on amounts for PFE associated with all derivatives trans-actions 11226.18 6 Gross-up for derivatives collateral provided where deducted from the balance sheet assets pursuant to the operative ac-counting framework 0.00 7 (Deductions of receivables assets for cash variation margin provided in derivatives transactions) 0.00 8 (Exempted CCP leg of client-cleared trade exposures) 0.00 9 Adjusted effective notional amount of written credit derivatives 0.00 10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) 0.00 11 Total derivative exposures (sum of lines 4 to 10) 14072.95 Securities financing transaction exposures 12 Gross SFT assets (with no recognition of netting), after adjust-ing for sale accounting transactions 34000.00 13 (Netted amounts of cash payables and cash receivables of gross SFT assets) 0.00 14 CCR exposure for SFT assets 289.84 15 Agent transaction exposures 0.00 16 Total securities financing transaction exposures (sum of lines 12 to 15) 34289.84 Other off-balance sheet exposures 17 Off-balance sheet exposure at gross notional amount 332019.54 18 (Adjustments for conversion to credit equivalent amounts) 201491.20 19 Off-balance sheet items (sum of lines 17 and 18) 130528.34 Capital and total Exposures 20 Tier 1 Capital 145815.81 21 Total exposures (sum of lines 3,11,16 and 19) 2015360.13 Leverage Ratio 22 Basel III leverage ratio 7.24%

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INDEPENDENT AUDITORS’ REPORT Emphasis of matter

TO THE MEMBERS OF THE FEDERAL BANK LIMITED 3. As more fully described in Note 1.13 (e) to the Consolidated Financial Statements, the extent to which the COVID-19 Report on the audit of the consolidated annual financial pandemic will have impact on the Bank's financial performance statements is depended on future developments which are highly uncertain Opinion Our opinion on the consolidated financial statements is not 1. We have audited the consolidated annual financial statements modified in respect of the above matters. of The Federal Bank Limited (hereinafter referred to as the “the Key audit matters Bank” or “holding company”), and its subsidiaries (Holding 4. Key audit matters are those matters that, in our professional company and its subsidiaries together referred to as “the judgment, were of most significance in our audit of the Group”) and its associates which comprise the consolidated consolidated financial statements of the current period. These balance sheet as at 31 March 2020, the consolidated profit and matters were addressed in the context of our audit of the loss account, the consolidated cash flow statement for the year consolidated financial statements as a whole, and in forming then ended, and notes to the consolidated financial statements, our opinion thereon, and we do not provide a separate opinion including a summary of significant accounting policies and on these matter. other explanatory information (hereinafter referred to as “the consolidated financial statements”). In our opinion and to the best of our information and according to the explanations given to us, and based on the consideration of reports of other auditors on separate audited financial statements of such subsidiaries and associates as were audited by other auditiors, the aforesaid consolidated financial statements give the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 (the ‘Act’) in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the consolidated state of affairs of the Group and its associates as at 31 March 2020, of its consolidated profit and consolidated cash flows for the year then ended.

Basis for opinion 2. We conducted our audit in accordance with the Standards on Auditing (‘SAs’) specified under section 143 (10) of the Act. Our responsibilities under those SAs are further described in the Auditor’s Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Group and its associates in accordance with the Ethical requirements that are relevant to our audit of the consolidated financial statements in terms of the Code of Ethics issued by the Institute of Chartered Accountants of India and the relevant provisons of the Act, and we have fulfilled our Ethical responsibilities in accordance with these requirements. We believe that the aduit evidence obtained by us along with the consideration of audit reports of the other auditors referred to in the "Other Matters" paragraph below, is sufficient and appropriate to provide a basis for for opinion on the consolidated financial statements.

221 Consolidated Financial Statements Description of Key Audit Matters Identification of Non-Performing Assets (‘NPAs’) and Provision on Advances Gross NPA: INR 3,580.15 crore for year ended 31 March 2020 Charge (including write-off): INR 1012.48 crore for year ended 31 March 2020 NPA Provision: INR 1,892.23 crore as at 31 March 2020 Refer to the accounting policies in “Schedule 17 to the Consolidated Financial Statements: Significant Accounting Policies- Use of estimates and Advances and Note 1.8 of Schedule 18 to the Consolidated Financial Statements” The key audit matter How the matter was addressed in our audit Significant estimate and judgment involved Our key audit procedures included:

Identification of NPAs is made based on the assessment of various Design / controls criteria stipulated in the Reserve Bank of India (‘RBI’) guidelines • Assessing the design, implementation and operating with regard to the ‘Prudential Norms on Income Recognition, Asset effectiveness of key internal controls over approval, recording Classification and Provisioning’ (‘RBI Guidelines’). NPA classification and monitoring of loans, appointment/empanelment of is made borrower wise whereby if one facility to the borrower valuers, monitoring process of overdue loans (including those becomes an NPA then all facilities to such a borrower will be treated which became overdue subsequent to the reporting date), as an NPA. measurement of NPA provision, identification of NPA accounts Provisions in respect of such NPAs and restructured advances and assessing the reliability of management information, which are made based on management’s assessment of the degree of included overdue reports. Also, assessing how management impairment of the advances subject to and guided by the minimum has factored in the deterioration in the overall economic provisioning levels prescribed under RBI guidelines, prescribed from environment arising from COVID-19 in its NPA assessment. time to time. The provision on NPAs are also based on the valuation • Understanding management's approach, interpretation, systems of the security available. In case of restructured accounts, provision and controls implemented in relation to NPA computation, is made in accordance with the RBI guidelines. particularly in light of the COVID-19 regulatory package. We identified NPA identification and provision on loans and advances • For corporate loans we tested controls over the internal ratings as a key audit matter because of the significant efforts involved by process, monitoring of stressed accounts including credit file the management in identifying NPAs based on the RBI Guidelines, review processes and review controls over the approval of the level of management judgement involved in determining the significant individual impairment provisions. provision (including the provisions on assets which are not classified as NPAs), the valuation of security of the NPAs and on account of • Evaluated the design, implementation and operating the significance of these estimates to the financial statements of effectiveness of key internal controls over the valuation of the the Bank. securities for NPAs and the Special Mention Accounts (‘SMA’). On 11 March 2020, the World Health Organization declared the • Testing of management review controls over credit impairment Novel Coronavirus (COVID-19) outbreak to be a pandemic. indicators. We have identified the impact of, and uncertainty related to the • Involved our information systems specialist in the audit of this COVID-19 pandemic as a key event and consideration for recognition area to obtain evidence and get assurance over data integrity and measurement of NPAs on account of: and calculations, including system reconciliations. • Short- and long-term macroeconomic effect on businesses Substantive tests in the country and globally and its consequential first order • Test of details for a selection of exposures over calculation of and cascading negative impact on revenue and employment NPA provisions including valuation of collaterals for NPAs as generation opportunities; at 31 March 2020; provisioning determined by the Bank and • impact of the pandemic on the Bank’s customers and their also testing related disclosures by assessing the completeness, ability to repay dues; and accuracy and relevance of data and to ensure that the same is in compliance with the RBI guidelines with regard to the • application of regulatory package and relaxations announced Prudential Norms on Income Recognition, Asset Classification by the Reserve Bank of India (RBI) on asset classification, and Provisioning. regulatory reporting and provisioning. • Further for the accounts which meet the criteria for asset classification benefit in accordance with the Reserve Bank of India COVID-19 Regulatory Package, as per days past due status at 29 February 2020, testing calculation of provisions in line with the prescribed percentage.

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The key audit matter How the matter was addressed in our audit Management has conducted an assessment of the loan portfolio • We selected samples (based on quantitative and qualitative which may be impacted on account of COVID-19 with respect thresholds) of large corporates where impairment indicators to moratorium benefit and provision computation to borrowers had been identified by management. We obtained manage- prescribed by the RBI and also considered qualitative factors to ment’s assessment of the recoverability of these exposures evaluate the need of recording contingency provision on the (including individual provisions calculations) and challenged identified pool of loans at 31 March 2020. whether individual provisions, or lack of, were appropriate. • This included the following procedures: − Reviewing the statement of accounts, approval process, board and credit committees minutes, credit review of customer, review of Special Mention Accounts (‘SMA’) reports and other related documents to assess recoverability and the classification of the facility; − Assessed external collateral valuer’s credentials and comparing external valuations to values used in management’s assess- ments; and − For a selection of corporate loans not identified as displaying indicators of deterioration by management, challenged this assessment by reviewing the historical performance of the customer and assessed whether any impairment indicators were present. • Evaluating management rationale for the creation of additional provision contingency / general provision/ on identified pool of loans reflecting impact of COVID-19. • Assessing the factual accuracy and appropriateness of the additional financial statements disclosures made by the Bank regarding impact of COVID-19. Valuation of Financial Instruments (Investments) Gross value of investments: INR 36,158.65 crore as at 31 March 2020 Mark to market: INR 443.26 crore as at 31 March 2020 Net value of investments: INR 35,715.39 crore as at 31 March 2020 Refer to the accounting policies in “Schedule 17 to the Consolidated Financial Statements: Significant Accounting Policies- Investments” Significant estimate and judgment involved Our key audit procedures included: Investments Design / controls Investments are classified into ‘Held for Trading’ (‘HFT’), ‘Available We tested the design, implementation and operating effectiveness for Sale’ (‘AFS’) and ‘Held to Maturity’ (‘HTM’) categories at the of management’s key internal controls over the valuation process time of purchase. Investments, which the Bank intends to hold till and independent price verification, including the Bank’s review and maturity are classified as HTM investments. approval of the estimates and assumptions used for the valuation Investments classified as HTM are carried at amortised cost. Where including key authorization and data input controls; in the opinion of management, a diminution, other than temporary, We assessed appropriateness of the valuation methodologies with in the value of investments has taken place, appropriate provisions reference to RBI guidelines and Bank’s own valuation policy; are made. Read investment agreements / term sheets entered into during the Investments classified as AFS and HFT are marked- to-market on a current year, on a sample basis, to understand the relevant invest- periodic basis as per the relevant RBI guidelines. ment terms and identify any conditions that were relevant to the valuation of financial instruments.

223 Consolidated Financial Statements The key audit matter How the matter was addressed in our audit We identified valuation of investments as a key audit matter because We tested the controls operated at the Bank for ensuring of the management judgement involved in determining the value completeness of the investments. of certain investments (Bonds and Debentures, Pass through Substantive tests certificates) based on the policy and model developed by the Bank, impairment assessment for HTM book and the overall significance to We verified the list of investments from eKuber for SLR securities and the financial results of the Bank. DP statements for Non-SLR securities. We independently verified the fair valuation of investments on a sample basis with direct observable inputs and external input data such as market value from 'Financial Benchmarks India Private Limited ('FBIL')', spreads from 'The Fixed Income Money Market and Derivatives Association of India ('FIMMDA')' etc after considering the requirements of RBI guidelines. We assessed that the financial statement disclosures appropriately reflected the Bank’s exposure to investments valuation risks with reference to the requirements of the prevailing accounting standards and the RBI guidelines. Information technology (‘IT’) systems IT systems and automated controls Our key IT audit procedures included: The Bank’s key financial accounting and reporting processes are • We focused on user access management, change management, highly dependent on information systems including automated segregation of duties, system reconciliation controls and system controls in systems, such that there exists a risk that gaps in the IT application controls over key financial accounting and reporting control environment could result in the financial accounting and systems. reporting records being materially misstated. The Bank uses several • We tested a selection of key controls operating over the systems for its overall financial reporting. information technology in relation to financial accounting and In addition, large transaction volumes and the increasing challenges reporting systems, including system access and system change to protect the integrity of the Bank’s systems and data, cyber security management, program development and computer operations. has become a more significant risk in recent periods. • We tested the design and operating effectiveness of key controls Further, the prevailing COVID-19 situation, has caused the required over user access management which includes granting access IT applications to be made accessible on a remote basis. right, new user creation, removal of user rights and preventative We have identified ‘IT systems and automated controls’ as key audit controls designed to enforce segregation of duties. matter because of the high level automation, significant number of • For a selected group of key controls over financial and reporting systems being used by the management and the complexity of the system, we have performed procedures to determine that these IT architecture. controls remained unchanged during the year or were changed following the standard change management process. • We have also assessed other areas which includes password policies, security configurations, system interface controls, controls over changes to applications and databases and that business users, developers and production support did not have access to change applications, the operating system or databases in the production environment. • Security configuration review and related tests on certain critical aspects of cyber security on network security management mechanism, operational security of key information infrastructure, data and client information management, monitoring and emergency management. • Assessment of data security controls in the context of a large population of staff working from remote location at the year end.

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Information other than the consolidated financial state- of the Holding Company, as a aforesaid. ments and Auditor’s Report thereon 7. In preparing the consolidated financial statements, the respective 5. The Holding Company's management and Board of Directors management and Board of Directors of the companies included are responsible for the other information. The other information in the Group and of its associates are responsible for assessing comprises the information included in the Bank’s Annual report, the ability of each Company to continue as a going concern, but does not include the consolidated financial statements disclosing, as applicable, matters related to going concern and and our auditor’s report thereon. The Group’s Annual report using the going concern basis of accounting unless respective is expected to be made available to us after the date of this Board of Directors either intends to liquidate the Company or to auditor’s report. cease operations, or has no realistic alternative but to do so. Our opinion on the consolidated financial statements does not The respective Board of Directors of the companies included in cover the other information and we do not express any form of the Group and of its associates are responsible for overseeing assurance conclusion thereon. the financial reporting process of each Company. In connection with our audit of the consolidated financial Auditor’s responsibilities for the audit of the consolidated statements, our responsibility is to read the other information financial statements identified above when it becomes available and, in doing so, 8. Our objectives are to obtain reasonable assurance about whether consider whether the other information is materially inconsistent the consolidated financial statements as a whole are free from with the consolidated financial statements or our knowledge material misstatement, whether due to fraud or error, and to obtained in the audit or otherwise appears to be materially issue an auditor’s report that includes our opinion. Reasonable misstated. assurance is a high level of assurance, but is not a guarantee that When we read the Group’s Annual report, if we conclude that an audit conducted in accordance with SAs will always detect a there is a material misstatement therein, we are required to material misstatement when it exists. Misstatements can arise communicate the matter to those charged with governance. from fraud or error and are considered material if, individually Management's and board of directors' Responsibilities for or in the aggregate, they could reasonably be expected to the Consolidated Financial Statements influence the economic decisions of users taken on the basis of 6. The Holding Company's management and Board of Directors these consolidated financial statements. are responsible for the preparation and presentation of these As part of an audit in accordance with SAs, we exercise consolidated financial statements in term of the requirement professional judgment and maintain professional skepticism of the Act that give a true and fair view of the consolidated throughout the audit. We also: state of affairs, consolidated profit/loss and consolidated cash • Identify and assess the risks of material misstatement of the flows of the Group including its associates in accordance with consolidated financial statements, whether due to fraud or the accounting principles generally accepted in India, includ- error, design and perform audit procedures responsive to those ing the Accounting Standards specified under section 133 of risks, and obtain audit evidence that is sufficient and appropri- the Act, provisions of section 29 of the Banking Regulation Act, ate to provide a basis for our opinion. The risk of not detecting 1949 and the circulars and guidelines issued by Reserve Bank a material misstatement resulting from fraud is higher than of India (‘RBI’) from time to time. The respective management for one resulting from error, as fraud may involve collusion, and Board of Directors of the companies included in the Group forgery, intentional omissions, misrepresentations, or the and its associates are responsible for maintenance of adequate override of internal control. accounting records in accordance with the provisions of the • Obtain an understanding of internal control relevant to the audit Act for safeguarding of the assets of each Company and for in order to design audit procedures that are appropriate in the preventing and detecting frauds and other irregularities; selec- circumstances. Under section 143(3)(i) of the Act, we are also tion and application of appropriate accounting policies; making responsible for expressing our opinion on the internal financial judgments and estimates that are reasonable and prudent; and controls with reference to consolidated financial statements design, implementation and maintenance of adequate internal place and the operating effectiveness of such controls based financial controls, that were operating effectively for ensuring on our audit. the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the consolidat- • Evaluate the appropriateness of accounting policies used and ed financial statements that give a true and fair view and are the reasonableness of accounting estimates and related disclo- free from material misstatement, whether due to fraud or error, sures made by management and Board of Directors. which have been used for the purpose of preparation of the • Conclude on the appropriateness of management and board consolidated financial statements by management and Directors of directors use of the going concern basis of accounting in

225 Consolidated Financial Statements Auditor’s responsibilities for the audit of the consolidated From the matters communicated with those charged with financial statements (Continued) governance, we determine those matters that were of most significance in the audit of the consolidated financial statements preparing consolidated financial statements and, based on the of the current period and are therefore the key audit matters. audit evidence obtained, whether a material uncertainty exists We describe these matters in our auditor’s report unless law related to events or conditions that may cast significant doubt or regulation precludes public disclosure about the matter or on the appropriateness of this assumption. If we conclude that when, in extremely rare circumstances, we determine that a a material uncertainty exists, we are required to draw atten- matter should not be communicated in our report because the tion in our auditor’s report to the related disclosures in the adverse consequences of doing so would reasonably be expected consolidated financial statements or, if such disclosures are to outweigh the public interest benefits of such communication. inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our audi- Other Matters tor’s report. However, future events or conditions may cause 9. We did not audit the financial statements of two subsidiaries, the Group and its associates to cease to continue as a going whose financial statements reflect total assets of` 4041.83 crore concern. as at 31 March 2020, total revenues of ` 490.05 crore and total • Evaluate the overall presentation, structure and content of the net profit after tax of` 40.80 crore for the year ended 31 March consolidated financial statements, including the disclosures, 2020, and net cash inflow amounting to `158.82 crore for and whether the consolidated financial statements repre- the year ended on that date, as considered in the consolidated sent the underlying transactions and events in a manner that financial statements. The consolidated financial statements achieves fair presentation. also include the Group’s share of net profit of ` 37.71 crore • Obtain sufficient appropriate audit evidence regarding the -fi for the year ended 31 March 2020, as considered in the nancial information of such entities or business activities within consolidated financial statements, in respect of two associates, the Group and its associates to express an opinion on the whose financial statements have not been audited by us. These consolidated financial statements. We are responsible for the financial statements have been audited by other auditors whose direction, supervision and performance of the audit of financial report has been furnished to us by the Management and our information of such entities included in consolidated financial opinion on the consolidated financial statements, insofar as it statements of which we are the independent auditors. For relates to the amounts and disclosures included in respect of its the other entities included in the consolidated financial state- subsidiaries and its associates and our report in terms of sub- ments, which have been audited by other auditors, such other section (3) of Section 143 of the Act, insofar as it relates to auditors remain responsible for the direction, supervision and the aforesaid subsidiaries and associates is based solely on the performance of the audits carried out by them. We remain report of the other auditors. solely responsible for our audit opinion. Our responsibilities in The auditors of IDBI-Federal Life Insurance Company Limited this regard are further described in ‘Other Matters’ in this audit (‘the associate’) have reported, ‘The actuarial valuation of the report. liabilities for life policies in force and for discontinued policies We believe that the audit evidence obtained by us along with where liability exists is the responsibility of the Company’s the consideration of the audit report of the other auditors Appointed Actuary ('the appointed Actuary').The actuarial referred to in (para 10) of the ‘Other Matters’ paragraph below, valuation of these liabilities as at March 31, 2020 has been is sufficient and appropriate to provide a basis for our audit duly certified by the Appointed Actuary and in his opinion, the opinion on the consolidated financial statements assumption for such valuation are in accordance with guidelines We communicate with those charged with governance of and norms issued by the IRDAI of India and the Actuarial Society the Holding Company and such other entities included in of India in concurrence with the Authority. We have relied upon the consolidated financial statements of which we are the the Appointed Actuary’s certificate in this regard for forming independent auditors regarding, among other matters, the our opinion on the financial statements of the Company’. planned scope and the timing of the audit and significant audit Our opinion on the consolidated financial statements, and our findings, including any significant deficiencies in internal control report on Other Legal and Regulatory Requirements below, is that we identify during our audit. not modified in respect of the above matter with respect to our We also provide those charged with governance with a statement reliance on the work done and the report of the other auditor. that we have complied with relevant ethical requirements Report on other legal and regulatory requirement regarding independence, and to communicate with them all (A) As required by Section 143(3) of the Act, based on our audit relationships and other matters that may reasonably be thought and the consideration of the reports of the other auditors on to bear on our independence, and where applicable, related separate financial statements of such subsidiaries and associates safeguards.

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as were audited by other auditors, as noted in the ‘Other as it relates to the Group and its associates; Matters’ paragraph, we report, to the extent applicable, that: iii. there have been no delay in transferring amounts to the Investor (a) we have sought and obtained all the information and expla- Education and Protection Fund by the Bank or its subsidiary nations which to the best of our knowledge and belief were companies and associate companies during the year ended 31 necessary for the purpose of our audit of the aforesaid consoli- March 2020. dated financial statements; iv. The disclosures in the consolidated financial statements regard- (b) in our opinion, proper books of account as required by law ing holdings as well as dealings in specified bank notes during relating to preparation of the aforesaid consolidated financial the period from 8 November 2016 to 30 December 2016 have statements have been kept so far as it appears from our exami- not been made since they do not pertain to the financial year nation of those books and the report of the other auditors; ended 31 March 2020. (c) the consolidated balance sheet, the consolidated profit and (C) With respect to the matter to be included in the Auditors’ Report loss account, and the consolidated cash flow statement dealt under section 197(16): with by this Report are in agreement with the relevant books In our opinion and according to the information and of account maintained for the purpose of preparation of the explanations given to us, requirements with respect to the consolidated financial statements; matter to be included in the Auditor’s Report under section (d) in our opinion, the aforesaid consolidated financial statements 197(16) of the Act are not applicable to banking companies and comply with the Accounting Standards specified under Section based on the reports of the statutory auditors of such subsidiary 133 of the Act, read with Rule 7 of the Companies (Accounts) companies and associate companies incorporated in India Rules, 2014 to the extent they are not inconsistent with the which were not audited by us, the remuneration paid during accounting policies prescribed by RBI; the current year by the subsidiary companies and an associate (e) on the basis of the written representations received from the company to its directors is in accordance with the provisions of directors of the Bank as on 31 March 2020 taken on record Section 197 of the Act. The remuneration paid to any director by the Board of Directors of the Bank and the reports of the by the subsidiary companies and associate company is not in statutory auditors of its subsidiary companies and associates excess of the limit laid down under Section 197 of the Act. The companies none of the directors of the Group companies and auditors of IDBI-Federal Life Insurance Company Limited (‘the its associates companies incorporated in India are disqualified associate’) have reported, managerial remuneration is governed as on 31 March 2020 from being appointed as a director in u/s 34A of the Insurance Act, 1938 and requires IRDAI approval. terms of Section 164(2) of the Act; Accordingly, the provisions of Section 197 read with schedule V to the Act are not applicable, and hence reporting under Section (f) with respect to the adequacy of the internal financial controls 197(16) is not required. The Ministry of Corporate Affairs has with reference to financial statements of the Bank, its sub- not prescribed other details under Section 197(16) which are sidiary companies and its associate companies incorporated in required to be commented upon by us. India and the operating effectiveness of such controls, refer to our separate Report in “Annexure A” (B) With respect to the other matters to be included in the Auditor’s Report in accordance with Rule 11 of the Companies (Audit and For B S R & Co. LLP For M.M. Nissim & Co. Auditors) Rules, 2014, in our opinion and to the best of our Chartered Accountants Chartered Accountants information and according to the explanations given to us and Firm's Registration No: Firm's Registration No: 101248W / W-100022 107122W based on the consideration of the report of the other auditor on separate financial statements of the subsidiaries and associates, Akeel Master Varun P Kothari as noted in the ‘Other Matters’ paragraph: Partner Partner i. the consolidated financial statements disclose the impact of Membership No: 046768 Membership No: 115089 ICAI UDIN: 20046768AAAAIM8688 ICAI UDIN:20115089AAIN2079 pending litigations as at 31 March 2020 on its consolidated financial position of the Group and its associates –Refer Mumbai Mumbai 28 May 2020 28 May 2020 Schedule 12 and Note 18.1.14 to the consolidated financial statements; ii. provision has been made in the consolidated financial state- ments, as required under the applicable law or accounting standards, for material foreseeable losses, on long-term con- tracts including derivative contracts – Refer Note 18.1.15 to the consolidated financial statements in respect of such items

227 Consolidated Financial Statements Annexure A to the Independent Auditor’s Report of even Auditor’s Responsibility date on the consolidated financial statements of The 3. Our responsibility is to express an opinion on the internal Federal Bank Limited for the year ended 31 March 2020 financial controls with reference to consolidated financial statements based on our audit. We conducted our audit in Report on the Internal Financial Controls with reference to the aforesaid consolidated financial statements under Clause accordance with the Guidance Note and the Standards on (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 Auditing, prescribed under section 143(10) of the Act, to (“the Act”) the extent applicable to an audit of internal financial controls (Referred to in paragraph (A)(f) under ‘Report on Other Legal with reference to consolidated financial statements. Those and Regulatory Requirements’ section of our report of even Standards and the Guidance Note require that we comply with date) ethical requirements and plan and perform the audit to obtain Opinion reasonable assurance about whether adequate internal financial controls with reference to consolidated financial statements 1. In conjunction with our audit of the consolidated financial were established and maintained and if such controls operated statements of The Federal Bank Limited and its subsidiaries effectively in all material respects. (collectively referred to as the ‘Group’) and its associates as of and for the year ended 31 March 2020, we have audited 4. Our audit involves performing procedures to obtain audit the internal financial controls with reference to consolidated evidence about the adequacy of the internal financial controls financial statements of The Federal Bank Limited (hereinafter with reference to consolidated financial statements and their referred to as “the Holding Company”) and its subsidiaries and operating effectiveness. Our audit of internal financial controls its associates, as of that date. with reference to consolidated financial statements included obtaining an understanding of internal financial controls with In our opinion, the Holding Company and its subsidiary reference to consolidated financial statements, assessing the companies and its associates have, in all material respects, risk that a material weakness exists, and testing and evaluating adequate internal financial controls with reference to the design and operating effectiveness of the internal controls consolidated financial statements and such internal financial based on the assessed risk. The procedures selected depend on controls were operating effectively as at 31 March 2020, based the auditor’s judgement, including the assessment of the risks of on the internal financial controls with reference to consolidated material misstatement of the consolidated financial statements, financial statements criteria established by such companies whether due to fraud or error. considering the essential components of such internal controls stated in the Guidance Note on Audit of Internal Financial We believe that the audit evidence we have obtained and the Controls Over Financial Reporting issued by the Institute of audit evidence obtained by the other auditors of the relevant Chartered Accountants of India (the “Guidance Note”). subsidiary companies and associates companies, in terms of their report referred to in the Other Matters paragraph below, Management’s Responsibility for Internal Financial Controls is sufficient and appropriate to provide a basis for our audit 2. The respective company’s management and Board of Directors opinion on the internal financial controls with reference to are responsible for establishing and maintaining internal consolidated financial statements. financial controls based on the internal financial control Meaning of Internal Financial Controls with Reference to with reference to consolidated financial statement criteria Financial Statements established by the respective Company considering the essential 5. A company's internal financial controls with reference to components of internal control stated in the Guidance Note. consolidated financial statements is a process designed to These responsibilities include the design, implementation provide reasonable assurance regarding the reliability of and maintenance of adequate internal financial controls financial reporting and the preparation of financial statements that were operating effectively for ensuring the orderly and for external purposes in accordance with generally accepted efficient conduct of its business, including adherence tothe accounting principles. A company's internal financial controls respective company’s policies, the safeguarding of its assets, with reference to consolidated financial statements includes the prevention and detection of frauds and errors, the accuracy those policies and procedures that (1) pertain to the maintenance and completeness of the accounting records, and the timely of records that, in reasonable detail, accurately and fairly reflect preparation of reliable financial information, as required under the transactions and dispositions of the assets of the company; the Companies Act, 2013 (“the Act”).

228 Annual Report 2019-20

(2) provide reasonable assurance that transactions are recorded duly certified by the Appointed Actuary and in his opinion, the as necessary to permit preparation of financial statements in assumption for such valuation are in accordance with guidelines accordance with generally accepted accounting principles, and and norms issued by the IRDAI and the Actuarial Society of India that receipts and expenditures of the company are being made in concurrence with the Authority. We have relied upon the only in accordance with authorisations of management and Appointed Actuary’s certificate in this regard for forming our directors of the company; and (3) provide reasonable assurance opinion on the financial statements of the Company.’ regarding prevention or timely detection of unauthorised Our aforesaid reports under Section 143(3)(i) of the Act on the acquisition, use, or disposition of the company's assets that adequacy and operating effectiveness of the internal financial could have a material effect on the financial statements. controls over financial reporting insofar as it relates to its Inherent Limitations of Internal Financial Controls with Ref- subsidiary companies and its associates, which are companies erence to Financial Statements incorporated in India, is based on the corresponding reports of the auditors of such companies. 6. Because of the inherent limitations of internal financial controls with reference to consolidated financial statements, including Our opinion on the Internal Financial Controls under Clause (i) the possibility of collusion or improper management override of Sub-section 3 of Section 143 of the Act is not modified in of controls, material misstatements due to error or fraud may respect of the above matters with respect to our reliance on the occur and not be detected. Also, projections of any evaluation work done and the reports of the other auditors. of the internal financial controls with reference to consolidated financial statements to future periods are subject to the risk that the internal financial controls with reference to consolidated financial statements may become inadequate because of changes in conditions, or that the degree of compliance with For B S R & Co. LLP For M.M. Nissim & Co. the policies or procedures may deteriorate. Chartered Accountants Chartered Accountants Firm's Registration No: Firm's Registration No: Other Matters 101248W / W-100022 107122W

7. The auditors of IDBI-Federal Life Insurance Company Limited (‘the associate’) have reported, ‘The actuarial valuation of the Akeel Master Varun P Kothari Partner Partner liabilities for life policies in force and for discontinued policies Membership No: 046768 Membership No: 115089 where liability exists is the responsibility of the Company’s ICAI UDIN: 20046768AAAAIM8688 ICAI UDIN:20115089AAIN2079

Appointed Actuary (‘the appointed Actuary’). The actuarial Mumbai Mumbai valuation of these liabilities as at March 31, 2020 has been 28 May 2020 28 May 2020

229 Consolidated Financial Statements THE FEDERAL BANK LIMITED

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2020 (`in Thousands) As at As at Schedule March 31, 2020 March 31, 2019 CAPITAL AND LIABILITIES Capital 1 3,985,325 3,970,096 Reserves and surplus 2 144,238,256 131,012,444 Minority interest 2A 1,809,643 804,598 Deposits 3 1,522,519,073 1,348,789,321 Borrowings 4 125,277,199 87,062,913 Other liabilities and provisions 5 35,703,762 33,885,296 TOTAL 1,833,533,258 1,605,524,668 ASSETS Cash and balances with Reserve Bank of India 6 61,825,426 64,226,685 Balances with banks and money at call and short notice 7 65,747,653 36,308,004 Investments 8 357,153,933 316,756,971 Advances 9 1,248,494,994 1,115,359,205 Fixed assets 10 5,048,118 4,799,330 Other assets 11 95,263,134 68,074,473 TOTAL 1,833,533,258 1,605,524,668 Contingent liabilities 12 344,638,154 293,480,695 Bills for collection 37,676,464 35,428,061 Significant accounting policies 17 Notes on accounts 18 Schedules referred to above form an integral part of the Consolidated Balance Sheet

For and on behalf of the Board of Directors

Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN: 08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN: 06765216) (DIN:02274773)

As per our report of even date Directors:

For B S R & Co. LLP For M. M. Nissim & Co. Shubhalakshmi Panse (DIN : 02599310) Chartered Accountants Chartered Accountants C Balagopal (DIN : 00430938) Firm's Reg.No: 101248W/W-100022 Firm's Registration No: 107122W A P Hota (DIN : 02593219) K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648)

Manoj Fadnis (DIN : 01087055) Akeel Master Varun P Kothari Sudarshan Sen (DIN : 03570051) Partner Partner Membership No.046768 Membership No. 115089 Place: Mumbai Place: Mumbai

Place: Kochi Date : May 28, 2020

230 Annual Report 2019-20

THE FEDERAL BANK LIMITED

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2020 (`in Thousands) Year ended Year ended Schedule March 31, 2020 March 31, 2019 I. INCOME Interest earned 13 135,903,904 116,354,392 Other income 14 18,818,113 13,352,165 TOTAL 154,722,017 129,706,557 II. EXPENDITURE Interest expended 15 86,783,092 73,163,252 Operating expenses 16 35,467,071 28,365,765 Provisions and contingencies 16,944,181 15,352,309 TOTAL 139,194,344 116,881,326 III. NET PROFIT FOR THE YEAR 15,527,673 12,825,231 Less: Minority interest 102,800 17,960 Add: Share in Profit of Associates 377,087 355,624 IV. CONSOLIDATED NET PROFIT ATTRIBUTABLE TO GROUP 15,801,960 13,162,895 Balance in Profit and Loss Account brought forward from previous year 22,747,623 17,899,138 Less: Minority interest pertaining to Pre-acquisition profit (Note 2 of Schedule 17) 69,757 123,336 V. AMOUNT AVAILABLE FOR APPROPRIATION 38,479,826 30,938,697 VI. APPROPRIATIONS Transfer to Revenue Reserve 1,474,611 1,439,300 Transfer to Statutory Reserve 3,856,953 3,109,700 Transfer to Capital Reserve 1,358,289 344,800 Transfer to Special Reserve 960,000 840,000 Transfer to Reserve fund 58,502 70,168 Dividend pertaining to previous year paid during the year (Note 1.1 E of Schedule 18) 2,782,229 1,980,092 Tax on dividend (Note 1.1 E of Schedule 18) 571,895 407,014 Balance carried over to Consolidated Balance Sheet 27,417,347 22,747,623 TOTAL 38,479,826 30,938,697 Earnings per share (Face value of ` 2/- each) (`)(Note 1.6 of Schedule 18) Basic 7.94 6.65 Diluted 7.88 6.60 Significant accounting policies 17 Notes on accounts 18 Schedules referred to above form an integral part of the Consolidated Profit and Loss account

For and on behalf of the Board of Directors Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN:08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN:06765216) (DIN:02274773)

As per our report of even date Directors:

For B S R & Co. LLP For M. M. Nissim & Co Shubhalakshmi Panse (DIN : 02599310) Chartered Accountants Chartered Accountants C Balagopal (DIN : 00430938) Firm's Reg.No: 101248W/W-100022 Firm's Registration No: 107122W A P Hota (DIN : 02593219) K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648) Akeel Master Varun P Kothari Manoj Fadnis (DIN : 01087055) Partner Partner Sudarshan Sen (DIN : 03570051) Membership No.046768 Membership No. 115089 Place: Mumbai Place: Mumbai

Place: Kochi Date : May 28, 2020 231 Consolidated Financial Statements THE FEDERAL BANK LIMITED

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2020 (` in Thousands)

Year ended March 31, 2020 Year ended March 31, 2019 Cash Flow from Operating Activities Net Profit before taxes 20,873,947 19,938,655 Adjustments for: Depreciation on Group's Property 1,257,270 1,222,579 Depreciation on Investments 635,001 990,892 Amortisation of Premium on Held to Maturity Investments 740,116 528,891 Provision for Non Performing Investments 53,733 202,800 Provision / Charge for Non Performing Assets 10,124,852 6,339,460 Provision for Standard Assets 1,118,079 1000,773 (Profit)/ Loss on sale of fixed assets (net) (51,724) (182,012) (Income) / Loss From Associate (377,087) (355,624) Provision for Restructured assets (103,017) - Provision for Other Contingencies 43,545 42,623 34,314,715 29,729,037 Adjustments for working capital changes:- (Increase)/ Decrease in Investments [excluding Held to Maturity Investments] 4,022,630 20,396,660 (Increase)/ Decrease in Advances (143,260,641) (191,589,788) (Increase)/ Decrease in Other Assets (26,143,694) (7,166,039) Increase/ (Decrease) in Deposits 173,729,752 229,088,308 Increase/ (Decrease) in Other liabilities and provisions 1,653,577 5,438,970 10,001,624 56,168,111 Direct taxes paid (7,010,671) (7,170,785) Net Cash Flow from / (Used in) Operating Activities 37,305,668 78,726,363

Cash Flow from Investing Activities Purchase of Fixed Assets (1,544,635) (1,441,702) Proceeds from Sale of Fixed Assets 90,301 215,265 Investment in Subsidiaries (642,000) (50,000) Investment in Associate (6,661) (68,490) (Increase)/ Decrease in Held to Maturity Investments (44,822,694) (32,455,312) Net Cash generated / (Used in) Investing Activities (46,925,689) (33,800,239)

232 Annual Report 2019-20

THE FEDERAL BANK LIMITED

CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

(` in Thousands) Year ended March 31, 2020 Year ended March 31, 2019 Cash Flow from Financing Activities Proceeds from Issue of Share Capital 15,229 2,5811 Proceeds from Share Premium 825,666 1,567,393 Increase / (Decrease) in Minority Interest 913,658 637,451 Proceeds from Issue of Subordinate Debt 3,000,000 - Increase/(Decrease) in Borrowings (Excluding Subordinate Debt) 35,214,286 (36,209,656) Dividend Paid (Including Tax on Dividend) (3,354,125) (2,387,106) Net Cash generated from financing Activities 36,614,714 (36,366,107) Effect of exchange fluctuation on translation reserve 43,697 22,542 Increase/(Decrease) in Cash and Cash Equivalents 27,038,390 8,582,559

Cash and Cash Equivalents at the beginning of year 100,534,689 91,952,130 Cash and Cash Equivalents at the end of year 127,573,079 100,534,689

Note: Cash and Cash Equivalents comprise of Cash in hand (including foreign currency notes), Balances with Reserve Bank of India, Balances with banks and money at call and short notice (Refer Schedules 6 and 7 of the Consolidated Balance Sheet)

For and on behalf of the Board of Directors

Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN: 08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN: 06765216) (DIN:02274773)

As per our report of even date Directors:

For B S R & Co. LLP For M. M. Nissim & Co. Shubhalakshmi Panse (DIN : 02599310) Chartered Accountants Chartered Accountants C Balagopal (DIN : 00430938) Firm's Reg.No: 101248W/W-100022 Firm's Registration No: 107122W A P Hota (DIN : 02593219) K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648)

Manoj Fadnis (DIN : 01087055) Akeel Master Varun P Kothari Sudarshan Sen (DIN : 03570051) Partner Partner Membership No.046768 Membership No. 115089 Place: Mumbai Place: Mumbai

Place: Kochi Date : May 28, 2020

233 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 1 - CAPITAL Authorised Capital 5,000,000 5,000,000 2,500,000,000 (Previous year 2,500,000,000) Equity Shares of `2/- each Issued Capital 3,988,015 3,972,789 1,994,007,367 (Previous year 1,986,394,498) Equity Shares of ` 2/-each Subscribed, Called-up and Paid-up Capital 3,985,329 3,970,100 1,992,664,572 (Previous year 1,985,050,203) Equity Shares of `2/-each Less: Calls in arrears 4 4 Total 3,985,325 3,970,096 Refer Note 1.1 of Schedule 18 SCHEDULE 2 - RESERVES AND SURPLUS I. Statutory Reserve Opening balance 25,977,029 22,867,329 Additions during the year 3,856,953 3,109,700 29,833,982 25,977,029 II. Capital Reserves (a) Revaluation Reserve Opening balance 50,091 50,091 Additions during the year - - 50,091 50,091 (b) Others Opening balance 3,687,716 3,342,916 Additions during the year* 1,358,289 344,800 5,046,005 3,687,716 5,096,096 3,737,807 III. Share premium (Also refer Note 1.1 of Schedule 18) Opening balance 52,348,326 50,780,933 Additions during the year 844,463 1,594,448 Deductions during the year 18,797 27,055 53,173,992 52,348,326 IV. Revenue and Other Reserves (a) Revenue Reserve Opening Balance 18,695,880 17,256,580 Additions during the year 1,474,611 1,439,300 Deductions during the year - - 20,170,491 18,695,880 (b) Investment Fluctuation Reserve Opening Balance 1,897,200 1,897,200 Additions during the year - - 1,897,200 1,897,200

234 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...) (` in Thousands) As at March 31, 2020 As at March 31, 2019 (c) Special Reserve (As per section 36(1)(viii) of Income Tax Act) Opening balance 5,079,900 4,239,900 Additions during the year 960,000 840,000 6,039,900 5,079,900 V. Foreign Currency Translation Reserve Opening Balance 19,791 (2,751) Additions / (Deductions) during the year [Refer Schedule 17 (5.5)] 43,697 22,542 63,488 19,791 VI. Contingency Reserve Opening balance 301,003 301,003 301,003 301,003 VII. Reserve Fund Opening balance 207,032 180,496 Additions during the year 79,057 70,168 Deductions during the year 42,096 43,632 243,993 207,032 VIII. General Reserve Opening balance 853 1,033 Additions during the year - - Deductions during the year 89 180 764 853 IX. Cash flow Hedging Reserve Opening balance - (15,813) Additions during the year - 15,813 - - X. Balance in Consolidated Profit and Loss Account 27,417,347 22,747,623 Total 144,238,256 131,012,444

* - Includes Profit appropriated to Capital Reserve (net of applicable taxes and transfer to statutory reserve) on : a) Gain on sale of Held to Maturity Investments ` 1,336,850 Thousands (Previous year ` 260,221 Thousands) b) Profit on sale of Premises ` 21,439 Thousands (Previous year ` 84,579 Thousands)

235 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...) (` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 2A - MINORITY INTEREST

Minority interest at the date on which parent-subsidiary relationship came into existence 786,638 786,638 Subsequent increase 1,023,005 17,960 1,809,643 804,598

SCHEDULE 3 - DEPOSITS A. I. Demand Deposits i. From Banks 2,201,459 4,800,620 ii. From Others 79,815,030 81,973,323 82,016,489 86,773,943 II. Savings Bank Deposits 385,344,370 349,785,547 III. Term Deposits i. From Banks 31,507,478 19,060,109 ii. From Others 1,023,650,736 893,169,722 1,055,158,214 912,229,831 Total 1,522,519,073 1,348,789,321 B. I. Deposits of branches in India 1,521,643,190 1,348,014,785 II. Deposits of branches outside India 875,883 774,536 Total 1,522,519,073 1,348,789,321

SCHEDULE 4 - BORROWINGS I.Borrowings in India i. Reserve Bank of India 19,880,000 5,000,000 ii. Other Banks 20,314,686 11,865,303 iii. Other institutions and agencies 59,347,522 46,666,600 Total 99,542,208 63,531,903 II.Borrowings outside India 25,734,991 23,531,010 Total 125,277,199 87,062,913 Secured borrowings included in I and II above 101,338,611 56,182,049

SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. Bills Payable 1,803,851 4,067,915 II. Inter - office adjustments (Net) - 5,405 III. Interest accrued 3,104,896 3,154,722 IV. Others (including provisions)* 30,795,015 26,657,254 Total 35,703,762 33,885,296

*Includes (a) General provision for standard assets 6,405,053 5,348,829 (b) Deferred Tax Liability 66,209 959,927

236 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...) (` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. Cash in hand (including foreign currency notes) 13,813,235 7,037,300 II. Balance with Reserve Bank of India i. in Current Accounts 48,012,191 57,189,385 ii. in Other Accounts - - Total 61,825,426 64,226,685

SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India i. Balances with banks a. in Current Accounts 8,426,874 1,207,196 b. in Other Deposit Accounts 1,880,000 250,000 ii. Money at call and short notice a. With Banks 2,750,000 - b. With other institutions 38,250,000 21,650,558 Total 51,306,874 23,107,754 II. Outside India i. in Current Accounts 5,704,165 3,922,812 ii. in Other Deposit Accounts 7,374,644 8,240,113 iii. Money at call and short notice 1,361,970 1,037,325 Total 14,440,779 13,200,250 Grand Total (I and II) 65,747,653 36,308,004

237 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...) (` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 8 - INVESTMENTS I. Investments in India in : i. Government Securities ## 317,607,101 273,508,149 ii. Other approved Securities - - iii. Shares# 4,342,661 2,445,434 iv. Debentures and Bonds 14,686,492 12,028,568 v. Joint Venture* 2,453,062 2,373,419 vi. Others @ 17,303,679 26,397,781 Total 356,392,995 316,753,351 II. Investments outside India i. Government Securities (including Local authorities) 756,555 - ii. Subsidiaries / Joint Ventures abroad - - iii. Other investments (Shares) 4,383 3,620 Total 760,938 3,620 Grand Total (I and II) 357,153,933 316,756,971 Gross Investments In India 360,825,605 320,751,371 Outside India 760,938 3,753 Total 361,586,543 320,755,124 Depreciation/ Provision for Investments In India 4,432,610 3,998,020 Outside India - 133 Total 4,432,610 3,998,153 Net Investments In India 356,392,995 316,753,351 Outside India 760,938 3,620 Total 357,153,933 316,756,971

## Securities costing `70,234,352 Thousands (Previous Year `48,222,203 Thousands) pledged for availment of fund transfer facility, clearing facility and margin requirements. # Includes Cost of Investment in Associate amounting to `66,239 Thousands (Previous Year `68,490 Thousands) including Goodwill of `45,582 Thousands (Previ- ous Year `45,582 Thousands) * represents investment accounted as an associate in line with AS -23 , Accounting of Investments in Associates in Consolidated Financial Statements , prescribed under Section 133 of the Companies Act, 2013 [Refer Schedule 17, Note 2 (iv)]. @ Comprises of: (` in Thousands)

Particulars As at March 31, 2020 As at March 31, 2019 Pass through certificates (PTCs) 3,179,372 4,979,229 Certificate of Deposits 8,426,645 16,768,658 Commercial Paper 1,952,494 480,833 Venture Capital Funds (VCFs) 963,367 654,661 Security Receipts 2,381,801 3,514,400 Mutual Fund 400,000 - Others - - 17,303,679 26,397,781

238 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...)

(` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 9 - ADVANCES (NET OF PROVISIONS) A. i. Bills purchased and discounted 50,037,816 49,568,212 ii. Cash credits, overdrafts and loans repayable on demand 554,542,514 513,851,887 iii. Term loans 643,914,664 551,939,106 Total 1,248,494,994 1,115,359,205

B. i. Secured by tangible assets* 1,041,671,392 933,078,243 ii. Covered by Bank/Government guarantees # 23,853,476 19,555,065 iii. Unsecured 182,970,126 162,725,897 Total 1,248,494,994 1,115,359,205

C.I.Advances in India i. Priority sectors 296,524,927 300,456,563 ii. Public sector 1,307,504 2,731,508 iii. Banks 3,500,000 334,722 iv. Others 923,619,663 789,275,218 Total 1,224,952,094 1,092,798,011

C.II.Advances outside India i. Due from Banks 808,103 - ii. Due from Others a) Bills purchased and discounted - 899,921 b) Syndicated Loans 9,326,488 11,536,661 c) Others 13,408,309 10,124,612 Total 23,542,900 22,561,194 Grand Total (C I and C II) 1,248,494,994 1,115,359,205

* Includes Advances against book debts # Includes Advances against Letter of credit issued by banks

239 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...) (` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 10 - FIXED ASSETS

I OWNED ASSETS a.Premises # Gross Block At the beginning of the year 2,416,139 2,419,706 Additions during the year - - Deductions during the year 13,907 3,567 At the end of the year 2,402,232 2,416,139 Depreciation As at the beginning of the year 946,441 900,506 Charge for the year 45,917 48,411 Deductions during the year 9,513 2,476 Depreciation to date 982,845 946,441 Net Block 1,419,387 1,469,698 b.Other fixed assets (including furniture and fixtures) Gross Block At the beginning of the year 11,825,450 10,965,783 Additions during the year 1,452,041 1,354,384 Deductions during the year 1,045,379 494,717 At the end of the year 12,232,112 11,825,450 Depreciation As at the beginning of the year 8,679,340 7,967,727 Charge for the year 1,217,253 1,174,168 Deductions during the year 1,017,096 462,555 Depreciation to date 8,879,497 8,679,340 Net Block 3,352,615 3,146,110 II. Capital Work in progress (Including Capital Advances) 276,116 183,522 Total (I & II) 5,048,118 4,799,330

# Includes buildings constructed on leasehold land at different places having original cost of `659,861 Thousands (Previous Year `659,861 Thousands) and Written down value of `464,092 Thousands (Previous Year `475,256 Thousands) with remaining lease period varying from 57 - 69 years.

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SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET (CONTD...) (` in Thousands)

As at March 31, 2020 As at March 31, 2019 SCHEDULE 11 - OTHER ASSETS I. Inter - office adjustments (net) - - II. Interest accrued 10,849,208 8,673,231 III. Tax paid in advance/tax deducted at source (Net of provision) 10,728,633 9,683,666 IV. Stationery and Stamps 6,731 3,479 V. Non-banking assets acquired in satisfaction of claims* 24,376 26,587 VI. Others# 73,654,186 49,687,510 Total 95,263,134 68,074,473 * - Includes certain Non-Banking assets acquired in satisfaction of claims which are in the process of being transferred in the Bank's name. # Includes Priority sector shortfall deposits 60,167,801 39,754,250 SCHEDULE 12 - CONTINGENT LIABILITIES I. Claims against the Bank not acknowledged as debts 14,559,765 10,435,047 II. Liability on account of outstanding forward exchange contracts** 247,702,742 216,818,222 III. Guarantees given on behalf of constituents - in India 65,911,076 49,831,684 IV. Acceptances, endorsements and other obligations 14,105,927 14,698,846 V. Other items for which the Bank is contingently liable@ 2,358,644 1,696,896 Total 344,638,154 293,480,695 (Refer Note 1.14 of Schedule 18) ** - Including Derivatives @ - includes `1,773,742 Thousands (Previous Year : `1,145,572 Thousands) being amount transferred to DEA Fund Cell, RBI and outstanding, as per RBI circular DBOD. No.DEAF Cell.BC.114/30.01.002/2013-14.

241 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT (` in Thousands)

Year ended March 31, 2020 Year ended March 31, 2019 SCHEDULE 13 - INTEREST EARNED I. Interest/discount on advances/bills 110,451,811 93,041,226 II. Income on investments 21,854,988 20,393,592 III.Interest on balances with Reserve Bank of India and other inter-bank funds 1,399,639 734,688 IV. Others* 2,197,466 2,184,886 Total 135,903,904 116,354,392 * - Includes interest on Income tax refunds amounting to `1,878 Thousands (Previous year `341,251 Thousands) accounted based on Assessment orders received. SCHEDULE 14 - OTHER INCOME I. Commission, exchange and brokerage 9,640,542 7,812,104 II. Profit on sale of investments (Net) 6,079,246 2,291,075 III. Profit on revaluation of investments (Net) - - IV. Profit / (Loss) on sale of land, buildings and other assets (Net) 51,724 182,012 V. Profit on foreign exchange transactions (Net) 2,384,773 2,356,789 VI. Income earned by way of dividends etc. from companies in India 667 - VII.Miscellaneous income** 661,161 710,185 Total 18,818,113 13,352,165 ** - Includes Recoveries in assets written off `522,418 Thousands (Previous year `435,841 Thousands)

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SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT AND LOSS ACCOUNT (CONTD...) (` in Thousands)

Year ended March 31, 2020 Year ended March 31, 2019 SCHEDULE 15 - INTEREST EXPENDED I. Interest on deposits 81,003,652 67,425,806 II. Interest on Reserve Bank of India/Inter bank borrowings 914,103 1,137,434 III.Others 4,865,337 4,600,012 Total 86,783,092 73,163,252 SCHEDULE 16 - OPERATING EXPENSES I. Payments to and provisions for employees 18,759,804 14,256,610 II. Rent, taxes and lighting 3,217,217 2,842,977 III. Printing and stationery 259,878 294,436 IV. Advertisement and publicity 121,258 156,876 V. Depreciation on Bank's property 1,257,270 1,222,579 VI. Directors' fees, allowances and expenses 23,866 16,744 VII. Auditors' fees and expenses (including branch auditors' fees and expenses) 95,594 84,678 VIII.Law charges 208,710 139,020 IX. Postage, Telegrams, Telephones etc 787,675 670,527 X. Repairs and maintenance 760,413 671,458 XI. Insurance 1,427,808 1,196,951 XII. Other expenditure# 8,547,578 6,812,909 Total 35,467,071 28,365,765 # - Includes expenditure on Corporate Social Responsibility - `433,170 Thousands (Previous Year: `177,294 Thousands)

243 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020

1. Background The Federal Bank Limited (‘FBL’ or the 'Bank') together with its subsidiaries (collectively, the ‘Group’) and associates is a diversified financial services group providing a wide range of banking and financial services including commercial banking, retail banking, project and corporate finance, working capital finance, insurance and treasury products and services. Operations of the Group are spread all over India. The Bank was incorporated in 1931 as Travancore Federal Bank Limited to cater to the banking needs of Travancore Province. It embarked on a phase of sustained growth under the leadership of Late K.P. Hormis. The bank is governed by Banking Regulation Act, 1949 and other applicable acts/ regulations. The bank had set up an International Financial Service Centre (IFSC) Banking unit (IBU) in Gujarat International Finance Tec-City (GIFT City) in line with global financial centres of Singapore and Dubai. IBU at Gift city is equivalent to an Offshore Banking unit, for all regulatory purposes.

2. Principles of consolidation i) The consolidated financial statements relate to the Federal Bank Limited (‘FBL’ or the 'Bank'), its subsidiary companies and the Group’s share of Profit in its associates. The details of subsidiary and associate entities are given below:

% of Holding and voting power either Country of Name of the entity Relationship Ownership held by directly or indirectly through subsidiary as at Incorporation March 31, 2020 March 31, 2019 Fedbank Financial Services Subsidiary Company India The Federal Bank Limited 74.00* 82.59 Limited (FFSL) Federal Operations and Services Subsidiary Company India The Federal Bank Limited 100.00 100.00 Limited (FOSL) IDBI Federal Life Insurance Associate India The Federal Bank Limited 26.00 26.00 Company Limited Equirus Capital Private Limited Associate India The Federal Bank Limited 8.74 8.74 *During the year, Fedbank Financial Services Limited issued 26,714,257 number of equity share of face value of `10/- each to True North Fund VI LLP on private placement basis. Pursuant which the Bank’s shareholding in Fedbank Financial Services Limited decreased from 82.59% to 74.00%. Further, the company issued 16, 666, 668 number of equity shares to all exisiting share holder in their holding propostion at ` 48/- per share. (ii) The audited financial statements of the subsidiary companies and the audited financial statements of the associates have been drawn up to the same reporting date as that of the Bank, i.e. March 31, 2020. (iii) The financial statements of the Bank and its subsidiary companies have been combined on a line-by-line basis as perAS 21 Consolidated Financial statements by adding together like items of assets, liabilities, income and expenses, after eliminating intra-group balances, intra-group transactions and resulting unrealised profits or losses, unless cost cannot be recovered. (iv) The consolidated financial statements include the share of profit of the associate company which have been accounted for using equity method as per AS 23 Accounting for Investments in Associates in Consolidated Financial Statements. Accordingly, the share of profit of the associate company has been added to the cost of investment. (v) The consolidated financial statements have been prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as the Bank's separate financial statements. (vi) Differences in accounting policies followed by the Subsidiary and associate have been reviewed and no adjustments have been made, since the impact of these differences is not significant.

3. Basis of accounting and preparation of consolidated financial statements The consolidated financial statements of the Bank and its subsidiary (together the 'Group') have been prepared in accordance with the Gener- ally Accepted Accounting Principles in India (Indian GAAP) to comply with the Accounting Standards prescribed under Section 133 of the Companies Act, 2013 and the relevant provisions of the Companies Act, 2013 (“the Act”) as applicable and current practices prevailing within the Banking Industry in India. Suitable adjustments are made to align with the format prescribed under the Banking Regulation Act, 1949. The consolidated financial statements have been prepared on accrual basis under historical cost convention, except in the case of interest income on Non- Performing Assets (NPAs) where it is recognised upon realisation as per RBI guidelines. The accounting policies adopted in

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SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) the preparation of financial statements are consistent with those followed in the previous year.

4. Use of estimates The preparation of the consolidated financial statements in conformity with the generally accepted accounting principles requires the Man- agement to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods.

5. Significant Accounting Policies

5.1. Revenue Recognition

The Bank • Interest income is recognised on an accrual basis except interest income on non-performing assets, which is recognised upon receipt as specified in RBI guidelines. • Interest on income tax refund is recognised in the year of receipt of Assessment Orders. • The recoveries made from NPA accounts are appropriated first towards unrealized interest/income debited to borrowers accounts, then expenditure/out of pocket expenses incurred and lastly towards principal dues. • Processing fees collected on loans disbursed, along with related loan acquisition costs are recognised at inception/Renewal of the loan. • Income on discounted instruments is recognised over the tenure of the instrument on a straight line basis. • Guarantee commission, commission on letter of credit and annual locker rent fees are recognised on a straight line basis over the period of contract. Other fees and commission income are recognised when due, except in cases where the bank is uncertain of ultimate collection. • Dividend on Equity Shares, Preference Shares and on Mutual Funds is recognised as Income when the right to receive the dividend is established. • Loan Syndication fee is accounted for on completion of the agreed service and when right to receive is established. • In compromise settlement cases, sacrifice on settlement is accounted upfront. • Unpaid funded interest on term loans are accounted on realisation as per the guidelines of RBI. • The difference between the sale price and purchase cost of gold coins, received on consignment basis is included in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid/received is accounted on an accrual basis.

Fedbank Financial Services Limited • Revenue is recognized as and when it is earned and no significant uncertainty exists as to its realization or collection. Interest Income is recognized on accrual basis, except in case of interest on non-performing assets which are recognized on receipt basis in accordance with "Systemically important non-Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms ( Reserve Bank) Direction,2016 " and the Accounting Standards specified under Section 133 of the Companies Act,2013 read with rule 7 of the Compa- nies (Accounts) Rules, 2014 and the guidelines issued by the Reserve Bank of India as applicable to a NBFC-ND-SI. Overdue charges are recognized when the Company is certain of its realization. • Interest on securities is accounted for on accrual basis except where the ultimate collection cannot be established with reasonable certainty. • Processing Fees & Penal Charges are recognized on receipt basis.

Federal Operations and Services Limited • Revenue from Operations is recognised as when services are rendered, as per the terms of Master Service Agreement entered into by the company.

245 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) 5.2. Advances Advances are classified into performing assets (Standard) and non-performing assets ('NPAs') as per the RBI guidelines and are stated net of bills rediscounted, inter-bank participation certificates issued with risk sharing, specific provisions made towards NPAs, floating provisions and unrealized interest on NPAs. Interest on Non Performing advances is transferred to an unrealized interest account and not recognized in consolidated profit and loss account until received. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. The Bank has made provision for Non-Performing Assets as stipulated under Reserve Bank of India (RBI) norms. The Bank also maintains provisions on loans under Scheme for Sustainable Structuring of Stressed Assets (S4A) and Strategic Debt Restructur- ing (SDR) scheme as per the RBI guidelines. Amounts recovered against debts written off are recognised in the consolidated profit and loss account and included under “Other Income”. For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by the RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. In respect of loans and advances accounts subjected to restructuring, the account is upgraded to standard only after the specified period i.e. a period of one year after the date when first payment of interest or of principal, whichever is later, falls due, subject to satisfactory performance of the account during the period. Provision for Unhedged Foreign Currency Exposure (UFCE) of borrower entities, is made in accordance with the guidelines issued by RBI, which requires the Bank to ascertain the amount of UFCE, estimate the extent of likely loss and estimate the riskiness of unhedged position of those entities. The Provision is classified under Schedule 5 – Other Liabilities in the Balance Sheet. The Bank maintains general provision for standard assets including credit exposures computed as per the current marked-to-market values of interest rate and foreign exchange derivative contracts, in accordance with the guidelines and at levels stipulated by RBI from time to time. The bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where bank is participat- ing, the aggregate amount of participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the bank is participating, the aggregate amount of participation is shown as due from banks under advances.

Fedbank Financial Services Limited Advances are classified as Performing Assets or Non-performing Assets and Provisions required are made as per the guidelines of the Reserve Bank of India on matters relating to Prudential Norms as applicable to "Non-Banking Financial Company - Systemically Important Non-Deposit taking Company and Deposit taking Company (Reserve Bank) Directions, 2016 "

5.3. Country risk

The Bank In addition to the provisions required to be held according to the asset classification status, provisions are held for individual country exposure (other than for home country). The countries are categorised into seven risk categories namely insignificant, low, moderate, high, very high, restricted and off-credit as per Export Credit Guarantee Corporation of India Limited (“ECGC”) guidelines and provision is made in respect of the country where the net funded exposure is 1% or more of the bank’s total funded assets.

5.4. Investments

The Bank

Classification In accordance with the RBI guidelines, investments are categorised at the time of purchase as: • Held for Trading (HFT); • Available for Sale (AFS); and • Held to Maturity (HTM)

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SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) Investments which are primarily held for sale within 90 days from the date of purchase are classified as “Held for Trading”. As per RBI guide- lines, HFT Securities which remain unsold for a period of 90 days are classified as AFS Securities on that date. Investments which the bank intends to hold till maturity are classified as “Held to Maturity”. Investments which are not classified in either of the above two categories are classified as “Available for Sale”. Under each of these categories, investments are further classified under six groups (hereinafter called groups) - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries/ Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.

Transfer of securities between Categories Transfer of securities between categories is done at the lower of the acquisition cost / book value / market value on the date of the transfer and the depreciation, if any, on such transfer is fully provided for, as per RBI guidelines.

Acquisition Cost In determining the acquisition cost of the Investment: • Transaction costs including brokerage and commission pertaining to acquisition of Investments are charged to the Consolidated Profit and Loss Account. • Broken period interest is charged to the Consolidated Profit and Loss Account. • Cost of investments is computed based on the weighted average cost method.

Valuation The valuation of investments is made in accordance with the RBI Guidelines as follows: a) Held for Trading /Available for Sale – Investments classified under the AFS and HFT categories are marked-to-market. The market/fair value of quoted investments included in the ‘AFS’ and ‘HFT’ categories is the Market Price of the Scrip as available from the trades/ quotes on the stock exchanges or prices declared by Primary Dealers Association of India (‘PDAI’) jointly with Fixed Income Money Market and Derivative Associations of India (‘FIMMDA’) / Financial Benchmarks India Pvt Ltd. (‘FBIL’), periodically. Net depreciation, if any, within each category of each investment classification is recognised in Profit and Loss Account. The net appreciation, if any, under each category of each Investment is ignored. Except in cases where provision for diminution other than temporary is created, the Book value of individual securities is not changed consequent to the periodic valuation of Investments. b) Held to Maturity– These are carried at their acquisition cost. Any premium on acquisition is amortized over the remaining maturity period of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided for. c) Treasury Bills, Commercial paper and Certificate of Deposits being discounted instruments, are valued at carrying cost. d) Units of Mutual Funds are valued at the latest repurchase price/net asset value declared by Mutual Fund. e) Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under: • In case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity (YTM) for Government Securities as published by FIMMDA/ PDAI/ FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each cat- egories and credit ratings along with residual maturity issued by FIMMDA/ FBIL are adopted for this purpose; • In case of bonds and debentures (including Pass Through Certificates or PTCs) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI; • Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company's latest Balance Sheet. In case the latest Balance Sheet available is of a date earlier than one year from the date of valuation, the shares are valued at ` 1/- per company; • Depreciation on equity shares acquired and held by the Bank under SDR and S4A scheme is provided over a period of four calendar quarters from the date of conversion of debt into equity in accordance with the RBI guidelines.

247 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) • Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not avail- able for a period beyond 18 months, the investments are valued at `1/- per VCF. Investment in unquoted VCF after August 23, 2006 are categorized under HTM category for the initial period of three years and valued at cost as per RBI guidelines; • In case of investments in security receipts on or after April 1, 2017 which are backed by more than 50 percent of the stressed assets sold by the Bank, provision for depreciation in value is made at the higher of - provisioning rate required in terms of net asset value declared by the Reconstruction Company (‘RC’)/Securitisation Company (‘SC’) or the provisioning rate as per the extant asset classification and provisioning norms as applicable to the underlying loans, assuming that the loan notionally continued in the books of the bank. All other investments in security receipts are valued as per the NAV obtained from the issuing RC/SCs. f) Investments in subsidiaries/associates as per RBI guidelines are categorized as HTM and assessed for impairment to determine permanent diminution, if any. g) The Bank follows settlement date method of accounting for purchase and sale of investments. h) Non Performing Investments are identified and valued based on RBI Guidelines.

Disposal of Investments a) Held for Trading and Available for Sale – Profit or loss on sale / redemption is included in the consolidated Profit and Loss account. b) Held to Maturity – Profit on sale / redemption of investments is included in the Consolidated Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale / redemption is charged to the Consolidated Profit and Loss account.

Repo and Reverse Repo transactions Repo and reverse repo transactions in government securities and corporate debt securities including those conducted under the Liquidity Adjustment Facility (‘LAF’) and Marginal Standby Facility (‘MSF’) with RBI are accounted as collateralised borrowing and lending respectively. Borrowing cost on repo transactions is accounted as interest expense and revenue on reverse repo transactions is accounted as interest income.

Short Sales In accordance with the RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The Short Sales positions are reflected in ‘Securities Short Sold (‘SSS’) A/C’, specifically created for this purpose. Such short positions are categorized under HFT category. These positions are marked -to-market along with the other securities under HFT Portfolio and resultant mark-to-market gains/ losses are accounted for as per the relevant RBI guidelines for valuation of Investments discussed earlier.

Fedbank Financial Services Limited Investments that are readily realizable and intended to be held for not more than a year are classified as Current Investments. All other invest- ments are classified as Long Term Investments. Investments held as long-term investments are carried at cost comprising of acquisition and incidental expenses. Provision for diminution in value of investments, if any, is made if in the opinion of management, such diminution is other than temporary. Any premium on acquisi- tion is amortised over the remaining maturity of the security on a constant yield to maturity basis. Such amortization of premium is adjusted against interest income from investments. The book value of investment is reduced to the extent of amount amortized during the relevant accounting period. Investments other than long-term investments are classified as current investments and valued at lower of cost or fair value.

5.5. Transactions involving foreign exchange

The Bank Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of non- integral foreign operations (IBU at GIFT city) are translated at quarterly average closing rates.

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SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) Foreign currency monetary items of domestic operation are translated at the closing exchange rates notified by Foreign Exchange Dealer’s Association of India (FEDAI) as at the Balance sheet date and the resulting net valuation profit or loss is recognized in the consolidated profit and loss account. Both Monetary and Non- Monetary foreign currency Assets and liabilities of Non- Integral Foreign Operations are translated at closing exchange rates notified by FEDAI at the balance sheet date and the resulting profit/loss arising from exchange differences are accumulated in Foreign currency translation Reserve until remittance or the disposal of the net investment in the non-integral foreign operations in accord- ance with AS 11. Any realised gains or losses on such disposal are recognised in the consolidated Profit and Loss Account. Foreign exchange spot and forward Contracts (Other than Foreign exchange swaps taken to hedge Federal Rupee plus deposits denominated in JPY) outstanding as at the Balance Sheet date are revalued at the closing Spot and Forward Rates respectively as notified by FEDAI and at interpolated rated for contracts of interim maturities. For valuation of contracts having longer maturities i.e greater than one year, the forward points (for rates/tenures not published by FEDAI) are obtained from Reuters for valuation of the FX Deals. As directed by FEDAI to consider profit or loss on present value basis, the forward profit or loss on the deals are discounted till the valuation date using the discounting yields. The resulting profit or loss on valuation is recognised in the Consolidated Profit and Loss Account. Foreign exchange swaps taken to hedge Federal Rupee plus deposits denominated in JPY are translated at the prevailing spot rate at the time of swap. The Premium/ Discount on the swap arising out of the difference in the exchange rate of the swap date and maturity date of the underlying forward exchange contract is amortised over the period of the swap and the same is recognised in the Consolidated Profit and Loss Account. Contingent liabilities on account of foreign exchange contracts, guarantees, letters of credit, acceptances and endorsements are reported at closing rates of exchange notified by FEDAI as at the Balance Sheet date.

5.6. Derivative transactions

The Bank The Bank recognises all derivative contracts at fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance sheet or reporting dates. Derivatives are classified as assets when the fair value is positive (Positive marked-to- market) or as liabilities when the fair value is negative (negative marked-to-market). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Consolidated Profit and Loss Account.

Fedbank Financial Services Limited The company enters into derivative contracts in the nature of Cross Currency Interest Rate Swaps, Foreign Currency Forwards,etc. with an intention to hedge its existing assets and liabilities in foreign currency. Derivative contracts which are closely linked to the existing assets and liabilities are accounted as per the policy stated for foreign currency transactions and translations. Derivative contracts designated as a hedging instrument for highly probable forecast transactions are accounted as per the policy stated for Hedge Accounting. All other derivative contracts are marked to market and losses are recognised in the statement of Profit and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence.

5.7. Proposed Dividend

Group In terms of Accounting Standard (AS) 4 "Contingencies and Events occurring after the Balance sheet date" as notified by the Ministry of Corpo- rate affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016 dated March 30, 2016, Proposed Dividend or Dividend declared after balance sheet date are not shown as liability in current year balance sheet. This is disclosed in the notes to accounts.

5.8. Fixed assets and depreciation

The Bank Fixed assets are carried at cost of acquisition less accumulated depreciation and impairment, if any. Cost includes cost of purchase and all

249 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) expenditure like freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Taxes like GST paid on Fixed assets are availed as ITC as per GST rules. Capital work-in-progress includes cost of fixed assets that are not ready for their intended use and also includes advances paid to acquire fixed assets. Depreciation on fixed assets, including amortisation of software, is charged over the estimated useful life of fixed assets on a straight-line basis at the rates and manner prescribed in Schedule II of the Companies Act, 2013, except as mentioned below: • Premises are depreciated under the written down value method, using the same useful life as in Schedule II of the Companies Act, 2013. Improvements to leased Premises are depreciated over 5 years based on technical evaluation. • Depreciation on premises revalued has been charged on their written-down value including the addition made on revaluation. • Assets individually costing ` 2,000/- or less are fully depreciated in the year of purchase. Depreciation on assets sold during the year is recognised on a pro-rata basis till the date of sale. Profit on sale of premises is appropriated to Capital Reserve account (Net of applicable taxes and transfer to statutory reserves) in accordance with RBI instructions.

Fedbank Financial Services Limited • Tangible Assets are carried at their cost of acquisition less accumulated depreciation and impairment losses, if any. Cost Includes Freight, duties, taxes and other incidental expenses and expenses on installation of the assets. • Depreciation/amortization on assets is charged based on the useful life of the assets as prescribed under Schedule II of the Companies Act, 2013. • Lease hold improvements are being amortized over the period of lease. • Intangible assets include computer software which are carried at cost of acquisition less accumulated amortization and amortized on an Straight Line Method (SLM) basis over the estimated useful lives of 3 years on a pro rata basis.

Federal Operations and services Limited • The cost of leaseholds Improvements are amortised on a straight line basis over the lease period. • The cost of software is capitalized as intangible asset and amortised on a straight line basis over the useful life of 5 years.

5.9. Impairment of Assets

Group The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount.

5.10. Non-Banking Assets

The Bank Non-Banking assets acquired in settlement of debts / dues are accounted at the lower of their cost of acquisition or net realisable value.

5.11. Retirement and other employee benefits

The Bank a) Provident Fund The contribution made by the bank to The Federal Bank Employees Provident Fund, administered by the trustees is charged to Consolidated Profit and Loss account.

250 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) b) Pension Fund The contribution towards The Federal Bank Employees’ Pension Fund, managed by trustees, is determined on actuarial basis on projected unit credit method as on the Balance Sheet date and is recognised in the profit and loss account. c) Gratuity The bank makes annual contribution to The Federal Bank Employees’ Gratuity Trust Fund administered and managed by the Trustees. The cost of providing such benefits is determined using the Projected Unit Credit method, with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in the Consolidated Profit and Loss Account in the period in which they occur. The retirement benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, as reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service cost, plus the present value of available refunds and reductions in future contributions to the schemes. d) Compensation for absence on Privilege / Sick / Casual Leave and Leave Travel Concession (LTC) The employees of the bank are entitled to compensated absence on account of privilege / sick / casual leave as per the leave rules. The bank measures the long term expected cost of compensated absence as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuation and such costs are recognised in the profit and loss account. The employees are also eligible for LTC as per the rules. The estimated cost of unused entitlement as on the Balance Sheet date based on actuarial valuation is provided for. e) New Pension Scheme (‘NPS’) Employees who joined the services of the Bank on or after April 01, 2010 are covered under New Pension Scheme. Bank contributes certain percentage of the sum of basic salary and dearness allowance of employees to the aforesaid scheme, a defined contribution plan, which is managed and administered by pension fund management companies. NPS contributions are recognised in the Profit and Loss Account in the period in which they accrue. f) Other employee Benefits The undiscounted amount of Short-term employee benefits expected to be paid in exchange for the services rendered by employees is recog- nised during the period when the employees render the service. These benefits include performance incentives.

Fedbank Financial Services Limited a) Short Term Employee Benefits All employee benefits payable wholly within twelve months of rendering the service are classified as short term employee benefits and the undiscounted amounts are recognized as expenses in the Profit & Loss Statement of the year in which the related services are rendered. b) Defined Contribution Plan The company has defined contribution plans for employees comprising of Provident Fund and Employee State Insurance. The contributions paid/payable to these plans during the year are charged to Statement of Profit & Loss for the Year. c) Defined Benefit Plan Payment of gratuity to employees is covered by the "Exide Life Group Gratuity Unit Linked Scheme" of the Exide life Insurance Company Limited, which is a defined benefit scheme and the company, makes contribution under the said scheme. The net present value of the obliga- tion for gratuity benefits as determined on the independent actuarial valuation, conducted annually using the projected unit credit method, as adjusted for unrecognised past service cost if any and as reduced by the fair value of planned asset is recognized in the accounts. Actuarial gains and losses are recognized in full in the statement of profit & loss for the period in which they occur. d) The company has a scheme for compensated absences for employees, the liability of which is determined on the basis of an independent actuarial valuation carried out at the end of the year, using the projected unit credit method. Actuarial gains and losses are recognised in full in the Profit and Loss Statement for the period in which they occur.

251 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) Federal Operations and Services Limited a) The company has defined contribution plans for employees comprising of Provident Fund and Employee State Insurance. The contribu- tions paid/payable to these plans during the year are charged to Profit and Loss Account for the year. b) The company pays gratuity, a defined benefit plan, to employees who retire or resign. The company provides gratuity to the eligible employees as a terminal benefit. These liabilities are determined on actuarial valuation, conducted annually using projected unit credit method at balance sheet date. Actuarial gains and losses are recognised in full in the Profit and Loss Account for the period in which they occur.

5.12. Segment information The disclosure relating to segment information is in accordance with the guidelines issued by RBI.

5.13. Lease transactions

Operating Lease

Group Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Consolidated Profit and Loss Account as per the lease terms.

5.14. Earnings per Share

Group The Group reports basic and diluted earnings per share in accordance with AS 20, Earnings per Share, as prescribed under Section 133 of the Companies Act, 2013. Basic earnings per share is computed by dividing the net profit after tax by the weighted average number of equity shares outstanding for the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end.

5.15. Taxation

Group Income tax expense is the aggregate amount of current tax and deferred tax charge. Current tax is the amount of tax payable on the taxable income for the year as determined in accordance with the applicable tax rates and the provisions of the Income Tax Act, 1961 and other applicable tax laws. Deferred tax is recognised on timing differences, being the differences between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax is measured using the tax rates and the tax laws enacted or substantively enacted as at the reporting date. Deferred tax liabilities are recognised for all timing differences. Deferred tax assets are recognised for timing differences of items other than unabsorbed depreciation and carry forward losses only to the extent that reasonable certainty exists that sufficient future taxable income will be available against which these can be realised. However, if there are unabsorbed depreciation and carry forward of losses and items relating to capital losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income available to realise the assets. Deferred tax assets and liabilities are offset if such items relate to taxes on income levied by the same governing tax laws and the Group has a legally enforceable right for such set off. Deferred tax assets are reviewed at each balance sheet date for their realisability. The Group Offsets Deferred Tax Assets and Deferred Tax Liabilities, and advance Income tax and provision for tax, if it has a legally enforceable right and these relate to taxes on income levied by the same governing taxation laws. Current and deferred tax relating to items directly recognised in reserves are adjusted in reserves and not in Consolidated Profit and Loss

252 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) Account. Minimum Alternate Tax (MAT) paid in accordance with the tax laws, which gives future economic benefits in the form of adjustment to future income tax liability, is considered as an asset if there is convincing evidence that the Group will pay normal income tax. Accordingly, MAT is recognised as an asset in the Consolidated Balance Sheet when it is highly probable that future economic benefit associated with it will flow to the Group.

5.16. Provisions, contingent liabilities and contingent assets

Group A provision is recognised when the Group has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions (excluding retirement benefits) are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. A disclosure of contingent liability is made when there is: • a possible obligation arising from a past event, the existence of which will be confirmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the group; or • a present obligation arising from a past event which is not recognised as it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognised in the period in which the change occurs.

5.17. Debit card reward points

The Bank The Bank runs a loyalty program which seeks to recognise and reward customers based on their relationship with the Bank. Under the program, eligible customers are granted loyalty points redeemable in future, subject to certain conditions. The Bank estimates the probable redemption of such loyalty/reward points using an actuarial method on a quarterly basis by employing independent actuary, which includes assumptions such as mortality, redemption and spends. Provision for said reward points is then made based on the actuarial valuation report as furnished by the said independent Actuary.

5.18. Employee Stock Option Scheme

The Bank The Bank has formulated Employee Stock Option Scheme (ESOS) 2010 & Employee Stock Option Scheme (ESOS) 2017 and is in accordance with Securities and Exchange Board of India (Employee Stock Option Scheme) Guidelines, 1999. The Scheme provides for grant of options to Employees of the Bank to acquire Equity Shares of the Bank that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines and the guidance note on “Accounting for Employee Share based payments” issued by the ICAI, the bank follows ‘Intrinsic value method’ for accounting of ESOS based on which, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period. The fair market price is the latest available closing price, prior to the date of grant, on the stock exchange on which the shares of the Bank are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date is considered.

253 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 17: SIGNIFICANT ACCOUNTING POLICIES FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) Federal Operations and Services Limited Stock options granted to employees under the stock option schemes are accounted using the intrinsic value method prescribed in the guidance note on Employees Share Based Payments issued by The Institute of Chartered Accountants of India. The intrinsic value of the option being excess of market value of the underlying share immediately prior to date of grant over its exercise price is considered as deferred employee compensation. The expense on deferred employee compensation is recognized in Profit and Loss Statement on straight line basis over the vesting period of the option. The options that lapse are reversed by a credit to expense, equal to the amortized portion of value of lapsed portion.

5.19. Share issue expenses

Group Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, 2013.

5.20. Corporate Social Responsibility

Group Spends towards corporate social responsibility, in accordance with Companies Act, 2013 are recognised in the Consolidated Profit and Loss Account.

5.21. Input Credit under GST

Group Goods & Service tax input credit is accounted for in the books within the time limit prescribed under CGST Rules, 2017, as amended.

5.22. Priority Sector Lending Certificates (PSLC)

The Bank The Bank vide RBI circular FIDD.CO.Plan.BC.23/ 04.09.01/2015-16 dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an ‘Expense’ and the fee received from the sale of PSLCs is treated as ‘Other Income’.

5.23. Cash and Cash Equivalents

Group Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at call and short notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).

254 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 Amounts in Notes forming part of the Consolidated Financial Statements for the year ended March 31, 2020 are denominated in Rupees Crore to conform to extant RBI guidelines except where stated otherwise.

1.1. Share Capital:

A. Equity Issue During the year ended March 31, 2020, the Bank has allotted 7,612,869 equity shares consequent to exercise of ESOS and 1,500 equity shares pertaining to Rights issue of 2007, which resulted in an increase of `1.52 Crore in Share Capital and `31.31 Crore in Share premium account. During the year ended March 31, 2019, the Bank has allotted 12,905,764 equity shares consequent to exercise of ESOS which resulted in an increase of `2.58 Crore in Share Capital and `52.79 Crore in Share premium account.

B. Subscribed and paid up capital includes: (i) 16,590 shares of `2/- each (Previous Year 16,590 shares of `2/- each) issued for consideration other than cash. (ii) 31,802,641 underlying equity shares of `2/- each (Previous Year 29,273,675 equity shares of `2/- each) held by custodian on behalf of holders of Global Depository Receipts (GDRs).

C. The following allotments are kept pending following orders from various courts (i) Allotment of 6,530 shares of `2/- each (Previous year 6,530 shares of `2/- each) pertaining to the Right issue of 1993 issued at premium of `5/- per share (ii) 262,100 shares of `2/- each (Previous year 262,100 shares of `2/- per share) pertaining to the Rights issue of 1996 issued at a premium of `28/- per Share (iii) 1,074,165 equity shares of `2/- each (Previous year 1,075,665 shares of `2/- per share), at a premium of `48/- per share pertaining to Rights issue of 2007 Issue of certificates/credit in demat account in respect of the following Bonus issues are kept in abeyance consequent to injunction orders from various courts. a) 406,670 shares of `2/- each (Previous year 407,670 shares of `2/- each) out of the Bonus issue of 2004 and b) 612,005 bonus shares of `2/- each (Previous year 613,505 bonus shares of `2/- each), out of the Bonus issue of 2015.

D. Employee Stock Option Scheme (“ESOS”):

The Bank

(i) Employee Stock Option Scheme 2010 (ESOS 2010) Shareholders of the bank had approved Employee Stock Option Scheme 2010 (ESOS 2010) through postal ballot, the result of which was announced on December 24, 2010, enabling the Board and/or the “Compensation Committee” to grant such number of equity shares, including options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the bank granted the following options: (Number of Options)

March 31, 2020 March 31, 2019 Outstanding at the beginning of the year 24,147,513 38,476,532 Surrendered during the year - - Granted during the year - - Exercised during the year 7,123,602 12,903,339 Forfeited/lapsed during the year 966,570 1,425,680 Outstanding at the end of the year 16,057,341 24,147,513 Options exercisable 15,897,341 23,640,013

255 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

As per SEBI guidelines the accounting for ESOS can be done either under the ‘Intrinsic value basis’ or ‘Fair value basis’. The Compensation Committee in their meeting dated May 10, 2012 decided to adopt ‘Intrinsic value method’ for accounting of ESOS, in terms of the power vested on them as per the resolution of EGM dated December 24, 2010. In accordance with the SEBI Guidelines and the guidance note on “Accounting for Employee Share based payments” issued by the ICAI, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period. ii) Employee Stock Option Scheme 2017 (ESOS 2017) Shareholders of the bank had approved The Federal Bank Limited Employee Stock Option Scheme 2017 (ESOS 2017) AGM held on July 14, 2017, as a Special Resolution, enabling the Board and/or the “Compensation Committee” to grant such number of equity shares, including options, of the Bank not exceeding 5% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the bank granted the following options: (Number of Options)

March 31, 2020 March 31, 2019 Outstanding at the beginning of the year 50,336,281 15,770,539 Surrendered during the year - - Granted during the year 30,522,736 37,231,307 Exercised during the year 489,267 2,425 Forfeited/lapsed during the year 3,141,840 2,663,140 Outstanding at the end of the year 77,227,910 50,336,281 Options exercisable 28,840,450 7,766,862 As per SEBI guidelines the accounting for ESOS can be done either under the ‘Intrinsic value basis’ or ‘Fair value basis’. As per the approval of shareholders, the Bank has adopted ‘Intrinsic value method’ for accounting of ESOS. In accordance with the SEBI Guidelines and the guidance note on “Accounting for Employee Share based payments” issued by the ICAI, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight line basis over the vesting period. iii) Effect of Fair value method of accounting ESOP: If “Fair Value Method” had been adopted based on “Black-Scholes pricing model” for pricing and accounting of options, net profit would be lower by ` 56.49 Crore (Previous Year: ` 70.36 Crore). The modified basic and diluted earnings per share for the year, had the Bank followed Fair Value Method of accounting for ESOS compensation cost would be ` 7.47 and ` 7.42 (Previous Year: ` 5.93 and ` 5.80) respectively.

Federal Bank Financial Services Limited Shareholders of the Company had approved Fedbank Financial Services Limited Employee Stock Option Plan 2018 (“ESOP Plan”)., the result of which was announced on November 13, 2018, enabling the Board and/or the “Compensation Committee” to grant such number of equity shares, including options, of the Company not exceeding 6% of the aggregate number of paid up equity shares of the Company, in line with the guidelines of SEBI. Pursuant thereto, the Compensation Committee of the Company granted the following options:

256 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) (Number of Options)

March 31, 2020 March 31, 2019 Outstanding at the beginning of the year - - Surrendered during the year - - Granted during the year 5,571,351 - Exercised during the year - - Forfeited/lapsed during the year 60,000 - Outstanding at the end of the year 5,511,351 - Options exercisable 515,028 -

Effect of Fair value method of accounting ESOP If “Fair Value Method” had been adopted based on “Black-Scholes pricing model” for pricing and accounting of options, net profit would be lower by `1.31 Crore (Previous Year: `Nil). The modified basic and diluted earnings per share for the year, had the Company followed Fair Value Method of accounting for ESOS compensation cost would be `1.64 and `1.64 (Previous Year: `Nil and `Nil) respectively.

Group

Effect of Fair value method of accounting ESOP If “Fair Value Method” had been adopted based on “Black-Scholes pricing model” for pricing and accounting of options, net profit would be lower by ` 57.46 Crore (Previous Year: ` 70.36 Crore). The modified basic and diluted earnings per share for the year, had the Bank followed Fair Value Method of accounting for ESOS compensation cost would be ` 7.66 and ` 7.61 (Previous Year: ` 6.29 and ` 6.16) respectively.

E. Proposed Dividend and Tax on Proposed Dividend The Reserve Bank of India, vide its circular dated April 17, 2020, has directed that banks shall not make any further dividend payouts from profits pertaining to the financial year ended March 31, 2020 until further instructions, with a view that banks must conservecapital in an environment of heightened uncertainty caused by COVID-19 pandemic. Accordingly, the Board of Directors of the Bank have not recommended any dividend for the year 2019-20 (Previous Year 70% i.e ` 1.40/- per Equity Share).

1.2 Employee Benefits (AS 15)

1.2.1 Defined Contribution Plan

The Bank

Provident Fund Employees, who have not opted for pension plan are eligible to get benefits from provident fund, which is a defined contribution plan. Aggregate contributions along with interest thereon are paid on retirement, death, incapacitation or termination of employment. Both the employee and the Bank contribute a specified percentage of the salary to the Federal Bank Employees ‘Provident Fund. The Bank has no obligation other than the monthly contribution.

New Pension Scheme As per the industry level settlement dated April 27, 2010, employees who joined the services of the Bank on or after April 01, 2010 are not eligible for the defined benefit retirement plans (the "pension plan") whereas they will be eligible for Defined Contributory Pension Scheme (DCPS) in line with the New Pension Scheme introduced for employees of Central Government. Employee shall contribute 10% of their Basic Pay and Dearness Allowance towards DCPS and the Bank will also make a matching contribution. There is no separate Provident Fund for employees joining on or after April 01, 2010.

The Subsidiaries The subsidiaries have defined contribution plans for employees comprising of Provident Fund and Employee State Insurance. The contributions paid/payable to these plans during the year are charged to Profit and Loss Account for the year.

257 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) Group The Group makes Provident Fund, Employee State Insurance Scheme Contributions and Defined Contributory Pension Scheme for Qualifying Employees. Under the schemes, the Group is required to contribute a specified percentage of the payroll costs to fund the benefits. The Group recognised ` 5.26 Crore (Previous year: ` 2.46 Crore) for provident fund contributions ` 0.48 Crore (Previous Year: ` 0.30 Crore) for Employee State Insurance Scheme Contributions and ` 36.39 Crore (Previous year: ` 30.24 Crore) for DCPS in the consolidated Profit and Loss Account. The Contributions payable to these plans by the group are at the rates specified in the Rules of the Schemes.

1.2.2 Defined benefit plan

A. Gratuity

The Bank The Bank provides for Gratuity, a defined benefit retirement plan (the “Gratuity Plan”) covering the eligible employees. The Gratuity Plan provides a lump sum payment to vested employees on retirement, death, incapacitation or termination of employment, of an amount based on the respective employees’ salary and the tenure of employment. Vesting occurs upon completion of five years of service as per Payment of Gratuity Act, 1972 and its amendment with effect from May 24, 2010 or as per the provisions of the Federal Bank Employees’ Gratuity Trust Fund Rules / Bi-partite Award provisions. Liabilities with regard to the Gratuity Plan are determined by Actuarial valuation as on the Balance Sheet date, based upon which, the Bank contributes all the ascertained liabilities to the Federal Bank Employees’ Gratuity Trust Fund (the “Trust”). Trustees administer contributions made to the Trust and contributions are invested in specific investments as permitted by law.

The Subsidiaries The net present value of the obligation for gratuity benefits, which is a defined benefit plan, as determined on independent actuarial valuation, conducted annually using projected unit credit method, as adjusted for unrecognized past services cost, if any, is recognised in the accounts. Actuarial gains and losses are recognised in full in the Consolidated Profit and Loss Account for the period in which they occur.

B. Superannuation / Pension

The Bank The Bank provides for monthly pension, a defined benefit retirement plan (the “pension plan”) covering eligible employees. The pension plan provides a monthly pension after retirement of the employees till death and to the family after the death of the pensioner. The monthly pension is based on the respective employees’ salary and the tenure of employment. Vesting occurs upon completion of ten years of service. The Bank pays the monthly pension by purchasing annuities from Life Insurance Corporation of India (LIC). Liabilities with regard to the pension plan are determined by actuarial valuation as on the Balance Sheet date, based upon which, the Bank contributes all the ascertained liabilities to the Federal Bank (Employees’) Pension Fund (the “Trust”). Trustees administer contributions made to the Trust and contributions are invested in specific investments as permitted by law. The following table as furnished by Actuary sets out the funded status of gratuity / pension plan and the amount recognized in the Group’s financial statements as at March 31, 2020. i) Change in benefit obligations (`in Crore)

Gratuity Plan Pension Plan FBL FFSL FOSL FBL Particulars March March March March March March March March 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 Projected benefit obligation, beginning of the year 329.19 311.55 1.07 0.64 * - 983.39 899.64 Current Service Cost 20.39 17.09 0.59 0.32 0.06 * 168.92 131.58 Interest cost 21.19 22.99 0.07 0.04 * - 59.17 63.99 Actuarial (gain)/ loss 43.54 9.53 0.19 0.14 * - 223.26 40.37 Benefits paid (39.68) (31.97) (0.11) (0.07) - - (236.76) (152.19) Projected benefit obligation, end of the year 374.63 329.19 1.81 1.07 0.06 - 1,197.98 983.39 * denotes figures less than ` 1 lakh 258 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) ii) Change in plan assets (` in Crore) Gratuity Plan Pension Plan FBL FFSL FBL Particulars March March March March March March 31, 2020 31, 2019 31, 2020 31, 2019 31, 2020 31, 2019 Plan assets at beginning of the year at fair value 334.23 265.75 1.10 - 978.09 893.06 Expected return on plan assets 24.53 21.82 0.09 0.04 73.26 71.18 Actuarial gain/(loss) 0.38 1.83 (0.01) 0.01 2.85 0.52 Employer’s Contributions 49.84 76.80 0.41 1.04 312.49 165.52 Benefits paid (39.68) (31.97) (0.10) - (236.76) (152.19) Plan assets at end of the year, at fair value 369.30 334.23 1.49 1.10 1,129.93 978.09 iii) Reconciliation of present value of the obligation and the fair value of the plan assets (` in Crore) Gratuity Plan Pension Plan FBL FFSL FOSL FBL Particulars March March March March March March March March 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 Fair value of plan assets at the end of the year 369.30 334.23 1.49 1.10 - - 1,129.93 978.09 Present value of the defined benefit obligations at 374.63 329.19 1.81 1.07 0.06 * 1,197.98 983.39 the end of the year Liability/ (Asset) recognized in the Consolidated Balance Sheet 5.33 (5.04) 0.31 (0.03) 0.06 * 68.05 5.30 * denotes figures less than `1 lakh iv) Gratuity / pension cost for the year ended March 31, 2020 (`in Crore) Gratuity Plan Pension Plan FBL FFSL FOSL FBL Particulars March March March March March March March March 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 Current Service cost 20.39 17.09 0.59 0.32 0.06 * 168.92 131.58 Interest cost 21.19 22.99 (0.02) 0.04 * - 59.17 63.99 Expected return on plan assets (24.53) (21.82) 0.01 (0.04) - - (73.26) (71.18) Actuarial (gain)/loss 43.15 7.69 0.19 0.12 * - 220.41 39.85 Net Cost 60.20 25.96 0.77 0.45 - - 375.24 164.24 Unamortised Gratuity expenditure of previous year - 53.58 ------expensed during current year# Net Cost Debit to Consolidated Profit and Loss 60.20 79.54 0.77 0.45 0.06 * 375.24 164.24 Account Actual return on plan assets 24.91 23.65 - - - * 76.11 71.70 * denotes figures less than ` 1 lakh # - Ministry of Labour and Employment, Government of India on March 29, 2018 has enhanced the gratuity ceiling to an employee under Payment of Gratuity Act,1972 to ` 20 Lakhs from earlier limit of ` 10 lakhs. This change has resulted to an incremental gratuity liability amounting to `71.43 Crore. As per the RBI circular DBR.BP.9730/21.04.018/2017-18 dated April 27, 2018 the bank has an option to spread the impact of change in gratuity ceiling over four quarters beginning with the quarter ended March 31, 2018. The bank has availed the option to spread the incremental gratuity expenditure over four quarters beginning with the quarter ended March 31, 2018. Accordingly, during the quarter and year ended March 31, 2018 the bank has charged to the profit and loss account an amount of` 17.85 crore and there was an unamortised gratuity expenditure of ` 53.58 Crore. However, during the quarter ended June 30, 2018, the bank has charged to the profit and loss account the entire unamortised gratuity expenditure of ` 53.58 Crore.

259 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) v) Investment details of plan Assets (`in Crore)

Gratuity Plan Pension Plan FBL FBL Particulars March March March March 31,2020 31,2019 31,2020 31,2019 Central and state Government bonds - - - - Other debt securities - - 7.99 10.99 Balance in Saving bank account with the Bank 2.42 2.62 4.14 2.68 Net current assets 0.01 0.01 0.53 5.87 Balance with LIC # 366.87 331.60 1,117.27 963.85 Total 369.30 334.23 1,129.93 983.39 # - In the absence of detailed information regarding plan assets which is funded with Life Insurance Corporation of India, the composition of each major category of plan assets, the percentage or amount for each category to the fair value of plan assets has not been disclosed. vi) Experience adjustments a) Gratuity Plan

FBL (`in Crore) March March March March March March Particulars 31, 2020 31, 2019 31, 2018 31, 2017 31, 2016 31, 2015 Defined Benefit Obligations 374.63 329.19 311.55 260.48 246.09 209.34 Plan Assets 369.30 334.23 265.75 261.54 225.66 223.52 Surplus/[Deficit] (5.33) 5.04 (45.80) 1.06 (20.43) 14.18 Experience adjustments on Plan Liabilities [Gain/(Loss)] (10.09) (6.56) (7.08) 2.18 (46.00) (6.31) Experience Adjustments on Plan Assets [ Gain/ (Loss)] 3.29 0.77 1.97 (0.42) (1.97) 1.19

FFSL (`in Crore) March 31, March 31, March 31, March 31, March 31, March 31, Particulars 2020 2019 2018 2017 2016 2015 Defined Benefit obligations 1.81 1.07 0.64 0.46 0.19 0.08 Plan Assets 1.49 1.10 Nil Nil Nil Nil Surplus/[Deficit] (0.31) 0.03 (0.64) (0.46) (0.19) (0.08) Experience adjustments on Plan Liabilities [Gain/ (Loss)] (0.07) 0.04 0.05 0.03 0.10 (0.03) Experience adjustments on Plan Assets [Gain/(Loss)] (0.01) 0.01 NA NA NA NA NA – Not Applicable. b) Pension Plan

FBL (`in Crore) March 31, March 31, March 31, March 31, March 31, March 31, Particulars 2020 2019 2018 2017 2016 2015 Defined Benefit Obligations 1,197.98 983.39 899.64 737.38 637.50 587.48 Plan Assets 1,129.93 978.09 893.06 746.33 578.27 544.40 Surplus/[Deficit] (68.05) (5.30) (6.58) 8.95 (59.23) (43.08) Experience adjustments on Plan Liabilities [Gain/(Loss)] (95.10) (39.39) (33.27) 93.67 (142.49) (79.75) Experience adjustments on Plan Assets [Gain/(Loss)] 7.54 (3.14) 9.60 6.66 0.18 2.19

260 Annual Report 2019-20

THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) vii) Assumptions Gratuity Plan Pension Plan FBL FFSL FOSL FBL Particulars March March March March March March March March 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 31,2020 31,2019 Discount rate 6.85% 7.78% 5.59% 6.85% 6.71% 7.79% 6.84% 7.77% Annuity rate per Rupee ------134.98313 134.98313 Salary escalation rate 5.00% 5.00% 6.50% 7.97% 5.00% 5.00% 5.00% 5.00% Estimated rate of return on plan assets 7.34% 8.21% - - - - 7.49% 7.97% Attrition Rate 2.00% 2.00% Not Available Not Available - - 1.00% 1.00% Mortality Table IALM IALM IALM IALM IALM IALM IALM IALM 2006-08 2006-08 2006-08 2006-08 2006-08 2006-08 2006-08 2006-08 Ultimate Ultimate Ultimate Ultimate Ultimate Ultimate Ultimate Ultimate The estimates of future salary increases considered in actuarial valuation take account of inflation, seniority, promotion and other relevant factors. The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations. As the contribution expected to be paid to the defined benefit plans during the annual period beginning after the balance sheet date is based on various internal / external factors, a best estimate of the contribution is not determinable.

(C) Leave Encashment/ Sick Leave / Leave Travel Concession / Unavailed Casual Leave

The Bank The employees of the Bank are entitled to compensated absence. The employees can carry forward a portion of the unutilised accrued compensated absence and utilise it in future periods or receive cash compensation at retirement or termination of employment for the unutilized accrued compensated absence for a maximum of 240 days. The Bank records an obligation for compensated absences in the period in which the employee renders the services that increase this entitlement. The Bank measures the expected cost of compensated absence as the additional amount that the Bank expects to pay as a result of the unused entitlement that has accumulated at the balance sheet date based on actuarial valuations. A sum of ` 25.55 Crore has been provided towards the above liabilities in accordance with AS 15 based on actuarial valuation. (Previous Year: ` 7.10 Crore)

Federal Bank Financial Services Limited The company has a scheme for compensated absences for employees, the liability of which is determined on the basis of an independent actuarial valuation carried out at the end of the year, using the projected unit credit method. Actuarial gains and losses are recognised in full in the Profit and Loss Account for the year in which they occur.

261 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) The Actuarial liability of compensated absences of accumulated privilege, sick, casual leaves and leave travel concession of the employees of the Group is given below: (`in Crore)

March 31, 2020 March 31, 2019 FBL FFSL FBL FFSL Privilege leave 168.29 1.20 149.47 0.54 Sick leave 18.25 - 13.36 - Leave Travel Concession 20.43 - 18.76 - Casual Leave 1.54 - 1.37 - Total actuarial liability 208.51 1.20 182.96 0.54 Assumptions Discount rate 6.85% 5.90% 7.78% 6.85% Salary escalation rate 5.00% 6.50% 5.00% 7.95% Attrition Rate 2.00% Not Available 2.00% Not Available The discount rate is based on the prevailing market yields of Government of India securities as at the Balance Sheet date for the estimated term of the obligations. The estimate of future salary increases considered, takes into account the inflation, seniority, promotion, increments and other relevant factors. The above information is as certified by the actuary and relied upon by the auditors.

1.3 Segment Reporting (AS 17)

A. Business Segments Business of the Group is divided into four segments viz. Treasury, Corporate or Wholesale Banking, Retail Banking and other banking operations. The principal activities of these segments and income and expenses structure are as follows:

Treasury Treasury operations include trading and investments in Government and corporate debt instruments, equity and mutual funds, derivative trading and foreign exchange operations on proprietary account and for customers. The income of this segment primarily consists of earnings from the investment portfolio of the bank, gains and losses on trading operations. The principal expense of the segment consists of interest expense on funds borrowed/utilized and other allocated overheads.

Corporate/Wholesale Banking This segment provides loans and other banking services to Corporate and other clients where value of individual exposure to the Clients exceeds ` 5 Crore as defined by RBI. Revenue of this segment consists of interest and fees earned on loans to such customers and charges and fees earned from other banking services. Expenses of this segment primarily consist of interest expense on funds utilized and allocated overheads.

Retail banking Retail banking constitutes lending and other banking services to individuals/small business customers, other than corporate/wholesale banking customers, identified on the basis of RBI guidelines. Revenue of this segment consists of interest earned on loans made to such customers and charges /fees carried from other banking services to them. The principal expenses of the segment consist of interest expenses on funds borrowed and other expenses.

Other Banking Operations This segment includes parabanking activities like third party product distribution and other banking transactions, not covered under any of

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) the above segments. The income from such services and associated costs are disclosed in this segment. The operations of Subsidiary has been classified under ‘Retail Banking’. The following table sets forth, for the periods indicated, the business segment results

March 31, 2020 (`in Crore) Corporate/ Whole Other Banking Business Segments Treasury Retail Banking Total sale Banking Operations Revenue 3,111.59 5,595.76 6,472.11 292.74 15,472.20 Result (Net of provisions) 791.18 (315.17) 1,586.39 57.03 2,119.43 Unallocated expense (59.46) Operating profit (PBT) 2,059.97 Income taxes (507.20) Share of Profit of associate 37.71 Minority Interest (10.28) Extraordinary profit/loss - Net Profit 1,580.20 OTHER INFORMATION Segment Assets 41,613.84 62,060.52 70,212.72 9.11 173,896.19 Unallocated assets 9,457.14 Total assets 183,353.33 Segment liabilities 40,742.66 60,567.04 66,123.59 5.50 167,438.79 Unallocated liabilities 911.22 Total liabilities 168,350.01

March 31, 2019 (`in Crore) Corporate/ Whole Other Banking Business Segments Treasury Retail Banking Total sale Banking Operations Revenue 2,547.61 5,073.76 5,084.03 265.26 12,970.66 Result (Net of provisions) 414.69 259.69 1,250.87 66.90 1,992.15 Unallocated expense (32.05) Operating profit (PBT) 1,960.10 Income taxes (677.58) Share of Profit of associate 35.56 Minority Interest (1.80) Extraordinary profit/loss - Net Profit 1,316.28 OTHER INFORMATION Segment Assets 35,782.32 58,169.60 57,863.86 11.38 151,827.16 Unallocated assets 8,725.31 Total assets 160,552.47 Segment liabilities 34,761.44 56,007.30 55,518.10 0.04 146,286.88 Unallocated liabilities 686.87 Total liabilities 146,973.75

263 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) B. Geographical Segment Information The Business operations of the Bank are largely concentrated in India and for purpose of Segmental reporting, the bank considered to operate only in domestic segment, though the bank has its operation in International Finance Service Centre (IFSC) Banking Unit in Gujarat International Finance Tec-city (GIFT). The business conducted from the same is considered as a part of Indian operations. Segment information is provided as per the MIS available for internal reporting purposes, which include certain estimates/ assumptions. The methodology adopted in compiling and reporting the above information has been relied upon by the auditors.

1.4. Related Party Disclosures (AS 18) a) Details of Related Parties:

Name of the Party Nature of Relationship IDBI Federal Life Insurance Company Limited Associate

Equirus Capital Private Limited Associate Mr. Shyam Srinivasan, Managing Director & CEO Key Management Personnel Mr. Ashutosh Khajuria, Executive Director & CFO Key Management Personnel Ms. Shalini Warrier, Executive Director (from January 15, 2020) Key Management Personnel Mr. Ganesh Sankaran, Executive Director (upto February 15, 2019 Key Management Personnel Fedbank Hormis Memorial Foundation Entity in which KMPs can exercise significant influence b) Significant transactions with related parties

For the year ended March 31, 2020

Key Management Items/Related Party Associates Total Personnel 20.80 3.08 23.88 Deposits# (` in Crore) (26.06) (3.08) (29.14) - 0.28 0.28 Advances# (` in Crore) - (0.53) (0.53) 228.21 - 228.21 Investments# (` in Crore) (228.21) - (228.21) Interest paid (` in Crore) 0.49 0.05 0.54 Interest received (` in Crore) - 0.02 0.02 Income from Services Rendered to (` in Crore) 43.93 - 43.93 Receivable from (` in Crore) 9.13 - 9.13 Remuneration paid (` in Crore) - 4.53 4.53 Dividend received paid (` in Crore) 30.57 - 30.57 Dividend Paid (` in Crore) - 1.18 1.18 Share capital received on exercise of ESOS (` in Crore) - 0.47 0.47 No. of Options granted under ESOS (in numbers) - 800,000 800,000 No. of Options outstanding under ESOS (in numbers) - 4,120,680 4,120,680 # - Represents outstanding as on March 31, 2020 Figures in bracket indicate maximum balance outstanding during the year based on comparison of the total outstanding balances at each month end. In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided where there is only one related party in a catagory.

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...)

For the year ended March 31, 2019

Key Management Items/Related Party Associates Total Personnel 22.34 0.29 22.63 Deposits# (` in Crore) (29.35) (0.50) (29.85) - 0.54 0.54 Advances# (` in Crore) - (2.12) (2.12) 227.54 - 227.54 Investments# (` in Crore) (227.54) - (227.54) Interest paid (` in Crore) 0.45 0.01 0.46 Interest received (` in Crore) - 0.05 0.05 Income from Services Rendered to (` in Crore) 39.78 - 39.78 Receivable from (` in Crore) 8.08 - 8.08 Remuneration paid (` in Crore) - 3.12 3.12 Dividend Paid (` in Crore) - 0.86 0.86 Share capital received on exercise of ESOS (` in Crore) - 17.56 17.56 No. of Options granted under ESOS (in numbers) - 900,000 900,000 No. of Options outstanding under ESOS (in numbers) - 3,189,430 3,189,430 # - Represents outstanding as on March 31, 2019 Figures in bracket indicate maximum balance outstanding during the year based on comparison of the total outstanding balances at each month end. In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided where there is only one related party in a catagory.

1.5. Operating Lease (AS 19):

The Bank Lease payments for assets taken on operating lease are recognised as an expense in the Profit and Loss Account as per the lease terms. During the year an amount of ` 164.88 Crore (Previous year: ` 154.67 Crore) was charged to Profit and loss account.

Fedbank Financial Services Limited The Company has entered into operating lease arrangement for its corporate office. The lease is non-cancellable and is for a period of 5 years and may be renewed for further period based on mutual agreement of the parties. The lease agreement provide for an increase in lease payment by 5% for every one year.

(`in Crore)

Particulars March 31, 2020 March 31, 2019 Future minimum lease payments: - Up to one year 4.89 4.06 - More than one year and upto five years 13.01 14.79 - More than five years - - Lease payments recognised in the Statement of Profit and Loss with respect to above 3.60 1.26 mentioned operating lease arrangement In addition, all other operating lease agreements entered into by the Company are cancellable in nature. Accordingly, the lease rental payments for assets taken on an operating lease ` 11.99 Crore (Previous Year ` 5.12 Crore) have been recognised as "Rent Paid" in the Statement of Profit and Loss.

265 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) 1.6 Earnings per Share ('EPS') (AS 20)

Particulars March 31, 2020 March 31, 2019 Weighted average number of equity shares used in computation of basic earnings per 1,989,049 1,980,208 share (in 000’s) Weighted average number of equity shares used in computation of diluted earnings per 2,004,059 1,992,628 share (in 000’s) Nominal Value of share (in `) 2.00 2.00 Basic earnings per share (in `) 7.94 6.65 Diluted earnings per share ( in `) 7.88 6.60 Earnings used in the computation of basic and diluted earnings per share (` in ‘000) 15,801,960 13,162,891

1.7 Deferred Tax Assets / Liability (AS 22) The major components of deferred tax assets and deferred tax liabilities are as under: (`in Crore) Particulars March31,2020 March31, 2019 Deferred Tax Liability Tax effect of items constituting deferred tax liability: (i) Interest accrued but not due 148.83 186.66 (ii) Depreciation on Investments 11.35 48.72 (iii) Depreciation on Fixed assets - 5.73 (iv) Special Reserve under Section 36 (1) (viii) of the Income Tax Act, 1961 137.64 157.59 (v) Others 7.44 14.30 Total - (A) 305.26 413.00 Deferred Tax Asset Tax effect of items constituting deferred tax assets: (i) Interest/premium paid on purchase of securities 2.74 22.14 (ii) Provision for Standard Assets 157.58 184.17 (iii) Depreciation on Fixed Assets 11.66 2.00 (iv) Others 126.65 108.74 Total - (B) 298.63 317.05 Net Deferred tax liability/ (Asset) (A-B) 6.63 95.95

1.8 ‘Provisions and Contingencies’ recognised in the Consolidated Profit and Loss Account include: (`in Crore)

March 31, 2020 March 31, 2019 i) Provision towards NPAs 1,012.48 631.53 ii) Provision for depreciation Investments (Net) 63.50 99.10 iii) Provision for Non Performing Investments 5.37 20.28 iv) Provision for Standard Assets 111.82 102.49 v) Provision for Taxation 507.20 677.62 vi) Provision towards present value of sacrifice on restructuring, other contingencies etc. (5.95) 4.21 Total 1,694.42 1,535.23

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) 1.9 Amount of Provisions made for income-tax during the year (`in Crore)

Particulars March 31,2020 March 31, 2019 Provision for Income Tax a) Current Tax 580.58 702.64 b) Deferred Tax (73.38) (25.06) Total 507.20 677.58

1.10 Draw Down from Reserves The Bank has not drawn down from any reserves during the year ended March 31, 2020 and March 31, 2019.

1.11 Details of Penalty imposed by RBI (`in Lakhs) Year ended March 31, Year ended March 31, 2020 2019 a) Penalty imposed on currency chests 0.50 0.28 Dates of Payment Various dates Various dates b) Penalty imposed on deficiency in regulatory compliances 50.00* 500.00# Date of Payment August 14, 2019 October 15, 2018 * Penalty was imposed by RBI vide letter EFD. CO. SO. 124 / 02.02.003 / 2019-20 dated August 05, 2019. # Penalty was imposed by RBI vide letter EFD. CO. SO. 287 / 02.02.003 / 2018-19 dated September 25, 2018.

1.12 Fixed Assets A) Fixed Assets as per Schedule 10 include Intangible Assets relating to Software and System Development Expenditure which are as follows: (`in Crore) Particulars March 31,2020 March 31, 2019 Gross Block At the beginning of the year 253.78 209.82 Additions during the year 28.95 43.96 Deductions / Adjustments during the year 24.99 - At the end of the year 257.74 253.78 Depreciation / Amortisation At the beginning of the year 194.64 157.29 Charge for the year 36.70 37.35 Deductions during the year 24.86 - Depreciation to date 206.48 194.64 Net Block 51.26 59.14

B) Revaluation of Fixed Assets During the year 1995-96, the appreciation of ` 9.65 Crore in the value of land and buildings consequent upon revaluation by approved valuers was credited to Revaluation Reserve. There has been no revaluation of assets during the year ended March 31, 2020 and March 31, 2019.

267 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) 1.13 Provisions and Contingencies a) Movement in provision for non-credit related* frauds included under other liabilities: (`in Crore)

March 31,2020 March 31, 2019 Balance at the beginning of the year 4.46 4.71 Additions during the year 1.37 0.31 Reductions on account of payments during the year 0.07 0.56 Balance at the end of the year 5.76 4.46 * Provision for credit related frauds included in Provision for NPAs. b) Movement in provision for debit card reward points: (`in Crore) March 31,2020 March 31,2019 Balance at the beginning of the year 5.19 4.60 Provision made during the year 36.49 15.61 Reductions during the year 26.10 15.02 Balance at the end of the year * 15.58 5.19 * The closing provision is based on the actuarial valuation of accumulated debit card reward points. This amount will be utilized towards redemption of the debit card reward points. c) Movement in provision for other contingencies: (`in Crore) March 31, 2020 March 31, 2019 Opening provision at the beginning of the year 55.49 66.44 Provision made during the year 3.57 4.58 Provision utilized for Write off during the year 1.04 1.14 Reductions during the year 26.74 14.39 Closing provision at the end of the year 31.28 55.49 Provision maintained towards Funded Interest Term Loans is also included in the movement in provision for other contingencies during the year ended March 31, 2020 for better presentation. Previous year figure have been revised to conform to current year's presentation. d) Movement in floating provision: (`in Crore) Standard Assets Provisions NPA Provision Particulars March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019

Opening balance 12.75 12.75 69.18 69.18 Provision made during the year - - - - Draw down from provision - - - - Closing balance 12.75 12.75 69.18 69.18 e) COVID-19 Regulatory Package - Asset Classification and Provisioning

The Bank The SARS-CoV-2 virus responsible for COVID-19 continues to spread across the globe and India, which has contributed to a significant vola- tility in global and Indian Financial markets and a significant decrease in the global and local economic activities. COVID-19 outbreak was declared as a global pandemic on March 11, 2020 by World Health Organisation. The Government of India had announced a series of lock- down measures on March 24, 2020 which has been extended from time to time. The extent to which the COVID-19 pandemic will impact the Bank’s performance will depend on future developments, which are highly uncertain, including among other things, any information

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SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) concerning the severity of the COVID-19 pandemic and action to contain its spread or mitigate its impact whether government mandated or elected by the Bank. The Bank’s capital and liquidity position is strong and would continue to be the focus area for the Bank. In accordance with the 'COVID-19 Regulatory Packages' announced by the RBI on March 27, 2020 and April 17, 2020 (‘the RBI guidelines’), with regard to providing relief to borrowers’ on account of COVID-19 pandemic whose accounts were standard as on February 29, 2020 , the Bank, in accordance with the Board approved policy had offered moratorium on repayment of loan instalments and/or deferment of interest due between March 1, 2020 and May 31, 2020 including relaxation in certain parameters, to all eligible borrowers, without considering the same as restructuring. Further on May 22, 2020, RBI has permitted the Banks to extend such benefits to eligible borrowers for another three months, from June 1, 2020 to August 31, 2020. In accordance with the RBI guidelines, the Bank is required to make provision @ 10% of outstanding advances over two quarters beginning with quarter ending March 31, 2020 in respect of such borrowers whose accounts, though classified as standard as on March 31, 2020, would have become non-performing but for these benefits/relaxations extended as per RBI guidelines. The Bank, as a prudent measure, has made the entire 10% provision amounting to `30.27 Crore during the quarter ended March 31, 2020 itself. Further, in addition to the above, as a prudent measure, the Bank has made additional provision of ` 63.03 Crore as at March 31, 2020 against the likely impact of COVID-19 pandemic in respect of exposure of the Bank to certain specified sectors based on assessment of presently available information. The entire provision of ` 93.30 Crore in respect of COVID-19 impact is grouped in the Balance sheet under Schedule 5 - Other liabilities and provisions.

Fedbank Financial Services Limited COVID-19 virus, a global pandemic has affected the world economy including India leading to significant decline and volatility in financial markets and decline in economic activities. The extent to which the COVID-19 pandemic will impact the Company’s provision on assets will depend on the future developments, which are highly uncertain, including among the other things any new information concerning the severity of the COVID-19 pandemic and any action to contain its spread or mitigate its impact whether government mandated or elected by the Company. The RBI on March 27, 2020 and April 17, 2020, announced ‘COVID-19 Regulatory Package’ on asset classification and provi- sioning. In terms of the RBI guidelines, the lending institutions have been permitted to grant a moratorium of three months on payment of all instalments/interest, as applicable, falling due between March 1, 2020 and May 31, 2020 (‘moratorium period’). As such, in respect of all accounts classified as standard as on February 29, 2020, even if overdue, the moratorium period, wherever granted, shall be excluded by the lending institutions from the number of days past-due for the purpose of asset classification under RBI’s Income Recognition and Asset Classification norms. The provisions held by the Company is higher than the provisions as prescribed by the RBI norms.

Federal Operations and services Limited Following the global outbreak of COVID-19 pandemic, the Government of India ordered a complete nationwide lockdown on March 24,2020 which has been extended for further periods with certain specified relaxations. However, the company had been able to continue its opera- tions under the directives of authorities without significant disruptions. Based on an assessment carried out by the management, having regard to the overall national and global economic environment, taking into account internal and external information available upto the date of approval of these financial statements, no material adjustments are required in the financial statements. The impact of the pandemic may be different from that estimated as at the date of approval of these financial statements and the management will continue to closely monitor any material changes to future economic conditions.

1.14 Description of contingent liabilities: a) Claims against the Group not acknowledged as debts These represent claims filed against the group in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the group. b) Liability on account of forward exchange and derivative contracts The Bank presently enters into foreign exchange contracts and interest rate swaps with interbank Counterparties and Customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Interest rate swaps are commit-

269 Consolidated Financial Statements THE FEDERAL BANK LIMITED

SCHEDULE 18: NOTES ON ACCOUNTS FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020 (CONTD...) ments to exchange fixed and floating interest rate cash flows in the same currency based on fixed rates or benchmark reference. The notional amounts of such foreign exchange contracts and derivatives provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank’s exposure to credit or price risks. The fluctuation of market rates and prices cause fluctuations in the value of these contracts and the contracted exposure become favorable (assets) or unfavorable (liabilities). The aggregate fair values of derivative financial assets and liabilities can fluctuate significantly as the aggregate contractual or notional amount of derivative financial instruments on hand can vary and the market rate fluctuations can decide the extent to which instruments are favorable or unfavorable. c) Guarantees given on behalf of constituents As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations. d) Acceptances, endorsements and other obligations These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank's customers that are accepted or endorsed by the Bank. e) Other items for which bank is contingently liable Includes Capital commitments and amount transferred to RBI under the Depositor Education and Awareness (DEA) Fund. (Refer Schedule 12 for amounts relating to Contingent Liabilities)

1.15 Provision for Long Term contracts The Group has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the bank has reviewed and recorded adequate provision as required under any Law/ Accounting Standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.

1.16 Small and Micro Industries

The Bank Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

Fedbank Financial Services Limited Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. Out of the trade payable of ` 8.70 crore (Previous year ` 6.69 crore), ` 0.10 crore (Previous year ` 0.09 crore) is due to Micro, Small and Medium Enterprises. The subsidiary has taken steps to identify the sup- pliers who qualify under definition of micro, and small enterprises as defined under the Micro, Small and Medium Enterprises Development Act, 2006.

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1.17 Additional information on net assets and share of profits of the Bank, its subsidiaries, associates and joint ventures as considered in the Consolidated Financial Statements.

March 31, 2020 Net Assets i.e. total assets minus total liabilities Share of profit or loss Name of the entity As % of Consoli- Amount As % of Consoli- Amount dated Net Assets (` in Crore) dated Profit or Loss (` in Crore) Parent: 97.94% 14,517.60 97.63% 1,542.78 The Federal Bank Limited Subsidiary: 1.78% 263.16 1.85% 29.26 Fedbank Financial Services Limited Federal Operations and Services Limited 0.01% 0.98 0.08% 1.27 Associate: 0.25% 37.31 0.51% 7.97 IDBI Federal Life Insurance Company Limited Equirus Capital Private Limited 0.02% 3.30 (0.07%) (1.08) Total 100.00% 14,822.35 100.00% 1580.20

March 31, 2019 Net Assets i.e. total assets minus total liabilities Share of profit or loss Name of the entity As % of Consoli- Amount As % of Consoli- Amount dated Net Assets (` in Crore) dated Profit or Loss (` in Crore) Parent: 98.20% 13,273.04 94.50% 1,243.88 The Federal Bank Limited Subsidiary: 1.56% 191.78 2.53% 33.28 Fedbank Financial Services Limited Federal Operations and Services Limited - (0.29) (0.02%) (0.29) Associate: 0.22% 29.34 2.66% 35.02 IDBI Federal Life Insurance Company Limited Equirus Capital Private Limited 0.02% 4.38 0.33% 4.38 Total 100.00% 13,498.25 100.00% 1,316.27

1.18. Additional disclosure Additional statutory information disclosed in the separate financial statements of the Bank and subsidiaries have no material bearing on the true and fair view of the consolidated financial statements and the information pertaining to the items which are not material have not been disclosed in the consolidated financial statements.

1.19 Figures for the previous year have been regrouped and reclassified, wherever necessary to conform to current year's presentation

For and on behalf of the Board of Directors Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN:08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN:06765216) (DIN:02274773)

As per our report of even date Directors:

For B S R & Co. LLP For M. M. Nissim & Co Shubhalakshmi Panse (DIN : 02599310) Chartered Accountants Chartered Accountants C Balagopal (DIN : 00430938) Firm's Reg.No: 101248W/W-100022 Firm's Registration No: 107122W A P Hota (DIN : 02593219) K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648) Akeel Master Varun P Kothari Manoj Fadnis (DIN : 01087055) Partner Partner Sudarshan Sen (DIN : 03570051) Membership No.046768 Membership No. 115089 Place: Mumbai Place: Mumbai

Place: Kochi Date : May 28, 2020 271 Consolidated Financial Statements FORM AOC-I (PURSUANT TO FIRST PROVISIO TO SUB-SECTION (3) OF SECTION 129 READ WITH RULE 5 OF COMPANIES (ACCOUNTS) RULES, 2014)

STATEMENT CONTAINING SALIENT FEATURES OF THE FINANCIAL STATEMENT OF SUBSIDIARIES / ASSOCIATE COMPANIES / JOINT VENTURES

PART “A”: SUBSIDIARIES (` in Thousands) 1. Sl. No. 1 2 2. Name of the subsidiary: Fedbank Financial Services Limited Federal Operations and Services Limited 3. The date since when subsidiary was acquired 17/04/1995 26/10/2018 4. Reporting period for the subsidiary concerned, if different from the hold- NA NA ing company’s reporting period. 5. Reporting currency and Exchange rate as on the last date of the relevant NA NA Financial year in the case of foreign subsidiaries. 6. Share Capital 2,743,694 100,000 7. Reserves & surplus 4,189,547 9,800 8. Total assets 40,281,377 136,930 9. Total Liabilities 33,348,136 27,130 10. Investments 413,045 - 11. Turnover 4,710,975 189,527 12. Profit before taxation 565,469 17,062 13. Provision for taxation 170,084 4,403 14. Profit after taxation 395,385 12,659 15. Proposed Dividend NIL NIL 16. Extent of shareholding (in %) 74.00 100.00 Notes: 1. Names of subsidiaries which are yet to commence operations - NIL 2. Names of subsidiaries which have been liquidated or sold during the year. – NIL 3. The reported figure of the subsidiaries are as per the audited financial statements prepared for the consolidation as per AS 21, Consolidated Financial Statements.

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PART “B”: ASSOCIATES AND JOINT VENTURES

STATEMENT PURSUANT TO SECTION 129 (3) OF THE COMPANIES ACT, 2013 RELATED TO ASSOCIATE COMPANIES AND JOINT VENTURES

IDBI Federal Life Insurance Name of Associates/Joint Ventures Equirus Capital Private Limited Company Limited 1.Latest audited Balance Sheet 31/03/2020 31/03/2020 2.Date on which the Associate or Joint Venture was associated or acquired 23/11/2006 12/07/2018 3.Shares of Associate/Joint Ventures held by the company on the year end

Number of shares held 208,000,000 3,600,000 Amount of Investment in Associates/Joint Venture (` ‘000) 2,080,000 68,490 Extent of Holding (in %) 26% 8.74% 4.Description of how there is significant influence Right of proportionate representation in the Board as well as power to participate in the Investment more than 20% financial/operational matters like approval of business plans, policies, budgets, managerial remuneration, change in KMP etc 5.Reason why the associate/joint venture is not consolidated NA NA 6.Networth attributable to Shareholding as per latest audited Balance Sheet 2,453,063 31,062 (` ’000) 7.Profit / Loss for the year 2019-20 (` ’000)

i. Considered in Consolidation 384,364 (7,277) ii. Not Considered in Consolidation 1,093,959 (76,004) 1. Names of associates or joint ventures which are yet to commence operations - NIL 2. Names of associates or joint ventures which have been liquidated or sold during the year - NIL.

For and on behalf of the Board of Directors

Krishnakumar K Samir P Rajdev Ashutosh Khajuria Shalini Warrier Senior Vice President Company Secretary Executive Director & CFO Executive Director (DIN:05154975) (DIN: 08257526)

Grace Elizabeth Koshie Shyam Srinivasan Chairperson Managing Director & CEO (DIN: 06765216) (DIN:02274773)

Directors:

Shubhalakshmi Panse (DIN : 02599310) C Balagopal (DIN : 00430938) A P Hota (DIN : 02593219)

K Balakrishnan (DIN : 00034031) Siddhartha Sengupta (DIN : 08467648)

Manoj Fadnis (DIN : 01087055)

Sudarshan Sen (DIN : 03570051)

Place: Kochi Date : May 28, 2020

273 Form AOC - I Form Glimpses from the grand finale of Speak for India – West Bengal edition 2019

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274 Annual Report 2019-20

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276 Annual Report 2019-20

Glimpses from the grand finale of Speak for India – Kerala edition 2019

277 Corporate Office: Post Box No. 103, Federal Towers, Aluva-683 101, Kerala, India, Ph: 91-484 2623620-29 Fax: 0484-2623119 email: [email protected], www.federalbank.co.in The Federal Bank Limited, Regd. Office. Aluva. CIN: L65191KL1931PLC000368 278